Control, investment flexibility and cost are among six of the reasons why SSAS is becoming the self-invested pension of choice for many people.
Discover Why Business Owners Have Benefitted From SSAS For More Than 40 Years
A Little SIPP And SSAS History
SSAS (small self-administered scheme) was the first type of self-invested pension. It’s been around since the 1970s. The first SIPP came along a whole lot later, after the Inland Revenue set the rules and conditions in 1989. Like other types of pension regulated by HMRC, SSAS enjoys generous tax privileges.
It’s no surprise SSAS was popular when it was launched. In 1974, the highest permanent rate of tax stood at 98 per cent, just below the higher ever rate of Income Tax when the rate peaked at 99.25 per cent during the Second World War.
In recent years, the massive rise in popularity of the SIPP market has significantly overshadowed SSAS. However, most SIPPs today are arranged by online platforms that restrict your investment choices mainly to stockmarket assets. If you’re interested in diversifying your pension money across a wider range of asset classes, such as commercial property, crowdfunding and peer-to-peer lending and high interest lending, you’ll need a full SIPP or a SSAS.
Despite the dominance of the SIPP, investment in SSAS isn’t small. It’s estimated to be worth tens of billions of pounds. And since pension freedoms were introduced in April 2015, SSAS has been making a notable resurgence. Highlighted below are six of the reasons for this.
SSAS 1. It Puts You In Control
“Don’t You Just Love Being In Control” said Bob Hoskins and his bunch of London gangsters in a British Gas Advert.
Unlike a SIPP, which operates a "sole trustee" model, all SSAS members are usually scheme trustees. This means you have a greater say in the running of the scheme. By way of example, a SSAS administrator cannot choose its preferred panel of specialists. Compare that to the situation facing some SIPP holders who’ve invested in commercial property, whose SIPP operators require them to use a particular property management firm, often at increased cost.
On the death of a SSAS member, the decision as to where any death benefits are distributed would be that of the trustees. In a SIPP, the decision rests with the SIPP operator, often as sole trustee, who may (or sometimes may not) take account of the ‘expression of wish nomination’.
SSAS 2. It's Good For Asset Allocation
In a SIPP, your investments are clearly owned by you. In a SSAS, the investments for all the members are held at ‘scheme’ level. It means no member has the right to a specific asset. This can be rather useful for exit planning and when you’re looking to mitigate potential charges.
Consider this. A scheme could hold a commercial property and liquid investments of equal value. An exiting member could notionally be allocated the liquid investments. The commercial property could remain in the SSAS, not only preventing it from being sold at perhaps an inopportune time, but also enabling any rental income to be notionally allocated to the remaining members, which may an appropriate investment strategy for the non-retired members.
SSAS 3. It Can Fund Business Growth
The big advantage of a SSAS over a SIPP is its ability to be able to grant a secured loan to the company of up to 50 per cent of the fund value of the SSAS. The SSAS can also be used to purchase shares in the business (generally up to 5 per cent for a single employer scheme). Neither of these is permitted within a SIPP, providing a SSAS with 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.
Here’s 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. This could provide the business with an immediate cashflow 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 that could be up to £40,000 per member (Annual Allowance 2016/2017)
- A loan to the SSAS
SSAS 4. It Offers Increased Investment Flexibility
While most SIPP operators and SSAS administrators adopt a similar level of due diligence over the investments allowed within each self-invested pension, a SSAS is not subject to the Financial Conduct Authority’s identification of investments as either a standard asset or a non-standard asset. The cost implication for a SIPP operator allowing non-standard assets is now so prohibitive, many firms will either not permit them to be held, or charge you an increased fee. This can severely restrict the investment flexibility of the SIPP.
A consequence of this is that 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.
SSAS 5. It Can Deliver Potential Cost Savings
There are a number of potential benefits in this area.
Where two or more people have a shared interest, such as directors or key personnel in business together, or families looking to pass on assets to future generations, a SSAS can be a cost effective solution. A SSAS only has one scheme charge, even though there could be several members. The combined cost of a collection of SIPPs used by a number of directors to purchase a commercial property 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 will duplicate the legal fees and disbursements, as each director's share of the property is purchased separately by their own SIPP.
If the employer pays the SSAS fee, the employer can claim the charge against its profits. To put some numbers to this, 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 usually deducted from the fund value. Not only could the employer's tax bill be a little higher, the director has less money invested in his pension fund once the SIPP fee has been deducted.
Since the trustees of a SSAS are at liberty to select their own professional partners and negotiate fees themselves, costs could be kept to a minimum in this area too.
SSAS 6. It's Good For Succession Planning
As well as having your say as a member and a trustee of the SSAS in any death benefit distribution, it 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.
Since pension freedoms came into force, 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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