SSAS: key questions answered
23 June 2020
What’s a SSAS – compared to a SIPP? What benefits do they offer clients? What are the risks of using them? Charlie Dewey, head of Key Accounts & Third Party Relationships, Curtis Banks, answers these questions and more
While SIPPs have grabbed more headlines in recent years, small self-administered schemes (SSASs) have been around for over 40 years and remain an invaluable form of pension planning. They have some key differences and potential advantages over SIPPs, including the following abilities:
The pooled asset structure of a SSAS also allows the business owners, their key executives and their families to group together pension assets.
What is a SSAS?
SSASs are small occupational pension schemes which are set up by the directors of a business who want more control over the investment decisions relating to their pensions; typically because they also want to act as a trustee in relation to their own pension benefits.
A SSAS is a UK registered pension scheme and is a trust in its own right, which means it is ring-fenced and a completely separate legal entity to the original sponsoring employer that helped to establish it.
SSASs feature the same benefits as other pension schemes, such as tax relief on pension contributions. However they also have some more unusual features; for example, instead of the scheme members owning an individual pension, the money is pooled together and paid out at the discretion of the trustees. This means that members can draw their benefits earlier or later than they had originally planned.
HMRC regulations limit the number of scheme members in a SSAS to 11.
How does a SSAS compare to a SIPP?
A SSAS is different to a SIPP in that the provider of the SSAS is not integral to the structure and operation of the pension. A poorly performing SSAS provider can simply be removed and replaced by a more suitable provider. Where the SSAS owns a property and the member trustees elect to change their professional trustee, they will need to appoint a solicitor to deal with the re-registration of the property title with the land registry. This will incur some additional legal costs which the SSAS will be expected to cover.
The cost of a SSAS can depend on the number of members. The cost of registering and administering a SSAS can sometimes be higher than the cost of administering individual SIPPs for the same number of members. However, the more members there are within a SSAS, the cheaper it can become for each individual member – particularly for SSASs that own a commercial property. This is because operating a SSAS on a pooled asset basis with just one trustee bank account helps to simplify the administration and keep the fees as low as possible.
One of the key differences between a SIPP and a SSAS is that a SIPP is open to the self-employed, whereas a SSAS is an employer-sponsored scheme. However, once the SSAS is established and registered with HMRC, new members can be added later on, such as family members. The new members only need to be employed by the sponsoring employer if the company plans to make employer contributions to the SSAS on their behalf.
Similarly to SIPPs, SSASs can invest in many types of assets, such as shares in companies listed on the main London stock exchange, Government securities, and Real Estate Investment Trusts. However, there are some assets which are still considered unacceptable investments by HMRC due to the risk that scheme members and/or their relatives could gain a personal benefit from them. Examples include residential or holiday property, tangible moveable property such as art or antiques, and premium bonds.
What is the benefit of a SSAS?
A SSAS offers much wider investment opportunities than many other types of registered pension schemes, including the ability to purchase and lease commercial property, as well as the potential to co-own property with the sponsoring employer. This is beneficial to those businesses that are able to purchase their trading premises as this offers large tax advantages, such as:
Each member of a SSAS has a notional share of the total value of the SSAS, and the trustees of the SSAS can potentially lend up to 50% of the net value of the SSAS to the original sponsoring employer, or to another participating employer that has been formally appointed to the scheme by way of an appropriate Trust Deed. Members should contact their own SSAS providers for further guidance and specific examples of how this may work in practice.
What are the risks of a SSAS?
The risks of a SSAS are broadly similar to those of many other types of pensions. The fund and the benefits of a SSAS are not guaranteed. They will depend on future investment performance and the financial conditions when the members draw benefits. Factors which could reduce the benefits available for the members include:
Members may also be at greater risk if the SSAS is heavily invested in higher risk assets. The value of some assets, such as property or unquoted equities, may not be known until they are sold, and they may take longer to sell.
What are the death benefits options from a SSAS?
SSAS members make expressions of wishes telling the SSAS trustees and scheme administrator who they would like to be chosen as their beneficiaries. The trustees and administrator will be guided by the nomination but are not bound by it; the benefits are ultimately paid at their discretion.
On death, any remaining funds in the SSAS can be paid out to a member’s beneficiaries as a lump sum or in the form of income. Lump sums can be paid to a wide range of beneficiaries but income may only be available to beneficiaries classed as dependants by HMRC, or beneficiaries the member has nominated. Beneficiaries can join an existing SSAS as additional beneficiary members and trustees if required. This might be the case, for example, if the agreed objective is to preserve a key asset such as a commercial property.
Income payments to a beneficiary are normally tax free if the scheme member died before age 75, and taxed at the beneficiary’s marginal rate of income tax if the member died age 75 or over.
As you can tell from this guide, SSASs are an important form of pension planning that allow business owners, their key executives and their families to group together pension assets. There are some key differences between SIPPs and SSASs that one should bear in mind when making a decision over the most suitable pension product. I hope this has provided a useful overview.
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