A SIPP and a SSAS are self-invested pensions that broadly do the same thing, so here are some of the key differences to help you decide whether a SIPP or a SSAS is likely to be a better solution for you.
A SIPP is a personal pension where the member can make his or her own decisions on the investment policy.
A SSAS is a company pension scheme where the members are trustees and determine the investment policy.
A Comparison Of SIPP And A SSAS Features
The table below highlights the key differences between a SIPP and a SSAS. Generally speaking, you'll see they're very similar.
Three Areas Where A SSAS Could Be Better Than A SIPP
Investing Your Pension Money
Both a SIPP and a SSAS allow you access to a wide range of asset classes. With a SIPP, your SIPP operator, who is usually your joint trustee, has a duty of care to carry out detailed due diligence on all of the investments it allows within its SIPP. It ensures compliance with HMRC regulations, particularly helping you to avoid 'taxable property' which could wipe out much of your pension fund in penalties and charges. Although this is good news, a SIPP operator has the right to prevent you from investing in areas it doesn't like, even though it's your money. Its decisions can change over time, so whilst an investment might be acceptable today, in the future, you may be prevented from topping it up, or reinvesting your money in the same area when your first investment matures. This could be for a number of reasons, as you can see in this article on SIPP investments.
With a SSAS, you are the trustee and administrator, so ultimately, it's your decision where you invest your money. It's for this reason, many people prefer a SSAS over a SIPP because they have the ultimate say on where their money is invested, rather than being controlled by a SIPP operator. The governing SSAS trust deed is likely to be tailored to your needs giving you a truly personalised pension, compared to a SIPP where a single Master Trust covers every member. To avoid incurring tax penalties, it's often wise to employ the services of an experienced pension practitioner to help you undertake due diligence on your chosen investments, and to update your trust deed from time to time.
Funding Your Business Growth
As you’ll see from the above table, a SSAS can grant loans to the sponsoring employer (your company), as well as buying its shares. If you're a business owner, you might be able to access money from your SSAS in a variety of ways to grow your business, often more competitively than other sources of finance. A SIPP would incur substantial penalties if it did this.
At a time when banks are still being criticised for their lack of support to small and medium size enterprises, pension-led funding is recognised as a cost effective source of financial support, putting you in control of your business funding.
Pooling Your Pension Money With Others
Families Passing On Wealth To Future Generations
Membership of a 'group' SSAS is often available by invitation to those who aren't employed by your company, meaning that spouses and children (aged at least 18) could be invited to join. Not only does this provide you with financial planning and taxation advantages, it could also enable your assets such as commercial property to move seamlessly and tax efficiently down the generations without having to be sold on the retirement or death of an older relative.
When Business Owners Buy Commercial Property
If you and your colleagues wish to purchase commercial property with a 'group' SSAS to maximise the tax advantages, perhaps the premises in which your business operates, you can pool your pension funds to complete a single property purchase for your 'group' SSAS. Whilst you could acquire the property using individual SIPPs, you'll duplicate all the acquisition costs and fees within each SIPP. You might also find SIPP operators reluctant to work with competitor firms, and when you come to draw your benefits, you may discover you don't get the full value when you come to sell your minority share in the property.
Friends and Common Interest Groups
As you don't have to work for the sponsoring employer to join its SSAS, it follows that people with common interests can effectively use the combined value of their pension funds for more substantial and profitable investments. The most popular 'group' SSAS investment is commercial property: it's not unusual for members of property clubs to join together to use their pension funds for various types of development and investment.
A SIPP Can Be Better Than A SSAS For Individuals - But Not Always
If you want to take control of your pension money with a self-invested pension, limiting your investment choices to standard stockmarket investments, it’s likely a SIPP will come out tops.
A restricted 'stockmarket only' SIPP can cost less than a SSAS, but arguably the most important feature is that a SIPP is regulated by the Financial Conduct Authority. A SSAS does not enjoy such protection. It means that if things go wrong with your SIPP, you can complain to the Financial Ombudsman Service, but you’ll be left high and dry with a SSAS. If the SIPP operator fails, you’re covered by the Financial Services Compensation Scheme, but with a SSAS, you’re on your own.
If you want to expand your investment choices beyond the stockmarket to some of the things you see on SIPPclub, like high interest loans or crowdfunding and peer-to-peer lending, you'll need a full SIPP or SSAS for that. They broadly cost the same, but a SSAS could afford you some extra benefits.
Self-invested pensions are undoubtedly an attractive proposition for affluent people who want control over their investment decisions. But if you’re not completely up to speed with the advantages and disadvantages of a SIPP and a SSAS, you should always seek advice from an experienced independent pension adviser with a specialism in both SIPP and SSAS.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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