The Small Self-Administered Scheme, SSAS, has been around for more than forty years and was the first self-invested pension; Self-Invested Personal Pensions, SIPPs, came along in 1989 and each enjoys generous tax privileges – writes Samir Dhillon, Personal Pension Adviser.

 

SSAS’ popularity can be set against the highest rate of permanent tax which was a whopping 98% when it launched in 1974; this was just below the higher ever rate of Income Tax which peaked at 99.25% during the Second World War.

SIPPs have experienced a massive rise in popularity in recent years and have significantly overshadowed SSAS; however, most SIPPs are arranged by online investment platforms and as a result investors are largely restricted in terms of their investment choices to stockmarket and relatively mainstream assets.

Those wishing to diversify their pension money across a wider range of asset classes, such as commercial property, crowdfunding and peer-to-peer loans will either have to select one of the platforms that offer a ‘full SIPP’ which tends to attract higher charges because of the complexity of valuing and settling some of the more esoteric investments, or consider a SSAS.

Despite the dominance of the SIPP, it is estimated that tens of billions of pounds are invested in SSAS in the UK, and since the 2015 pension freedoms, SSAS has made a notable resurgence; here are six reasons why:

 

Greater Control

 

Unlike a SIPP, which operates with a ‘sole trustee’, all members of a SSAS are generally trustees of the scheme, which means they can have a greater say in the running of the scheme.

By way of example, SIPP holders who have invested in commercial property may be required to use a particular property management firm by the SIPP operator, often at greater cost; a SSAS administrator cannot choose a preferred panel of specialists.

On the death of a SIPP member, the decision as to where any death benefits are distributed rests with the SIPP operator, often as sole trustee, who may (or sometimes may not) take account of the ‘expression of wish nomination’; on the death of a SSAS member, the decision is that of the trustees.

 

Asset Allocation

 

In a SIPP, the investments are clearly owned by the member; in a SSAS, the investments for all members are held at ‘scheme’ level, which means no member has the right to a specific asset.  This can be useful when seeking to mitigate potential charges on exit.

As an example, in a scheme that hold commercial property and liquid investments of equal value, an exiting member can notionally be allocated the liquid investments; the commercial property can then be retained in the SSAS, not only preventing it from being sold at a discount in unfavourable market conditions, but also enabling any rental income to be allocated to the remaining members, which may an appropriate investment strategy for the non-retired members.

 

Funding Business Growth

 

A major advantage of a SSAS over a SIPP for a small business is its ability to grant a secured loan to the company of up to 50% of the total value of the SSAS pot.

The fund can also be used to purchase up to 5% of the shares in the business; SIPPs do not permit loans to be made or shares to be bought which gives SSAS a significant edge for companies requiring funding.

A SSAS can also make an ‘in-specie’ contribution that qualifies for Corporation Tax relief in the same way as a cash contribution; as an example, a business owning a commercial property could transfer the ownership of it to the SSAS in order that rental income and any property appreciation accrues free of tax, providing the business with an immediate cash flow advantage.

The property purchase could be completed by a combination of any or all of the following:

 

  • Liquid investments within the SSAS
  • ‘In specie’ contribution of up to £40,000 per member
  • A loan to the SSAS

 

Increased Investment Flexibility

 

Most SIPP and SSAS administrators will adopt a similar level of due diligence over the investments allowed within each self-invested pension, but a SSAS is not subject to the Financial Conduct Authority’s identification of investments as either standard or non-standard assets.

If a SIPP operator allows investment in non-standard assets the costs can be punitive so many firms will either not permit them to be held, or charge you significantly higher fees; this can restrict the investment flexibility of the SIPP.

Consequently most SIPP operators currently do not permit crowdfunding or peer-to-peer lending, which are defined as non-standard assets, whereas a SSAS administrator isn’t subject to the same financial burden.

 

Potential Cost Savings

 

Where two or more people have a shared interest – co-directors or key personnel in business together, or families looking to pass on assets to future generations, SSAS can be a cost effective solution.

A SSAS only attracts one scheme charge, even though there could be several members; the combined cost of a collection of SIPPs used by a number of directors is often higher.

A purchase of a commercial property by a SSAS is one transaction, including one set of legal fees and disbursements; a group of directors using their SIPPs to purchase a commercial property see legal fees and disbursements duplicated as each share of the property is purchased by a separate SIPP.

If the employer pays the SSAS fee, it can be claimed against its profits; if the annual fee is £1,250 and the employer funds a director’s pension with a £40,000 contribution, the employer can deduct £41,250 from its profits, reducing its Corporation Tax bill in the process.

With a SIPP, the fee is deducted from the fund value, so the employer’s tax bill could be a little higher and the director has less money invested in his pension fund once the SIPP fee has been deducted.

Because the trustees of a SSAS are free to select their own professional partners and negotiate fees, costs could be kept to a minimum in this area too.

 

Succession Planning

 

In any death benefit distribution, members and trustees are party to any decision, but it  is also possible, and can be useful, for the SSAS to admit non-member trustees to provide further protection and influence over the decision as to who should benefit.

Pension freedoms mean that for family businesses in particular, a SSAS can be a very tax efficient means of accruing, protecting and finally passing on your pension money to your future generations, irrespective of whether your spouse or children take an active role in your business.





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