While SIPPs and SSASs share many of the same pension freedoms, important differences remain. Stephen McPhillips, Technical Sales Director at Dentons Pension Management Limited, examines each arrangement and looks at why the right choice will depend on a client’s objectives, business interests and long-term planning needs.
Pensions’ A-Day on 6 April 2006 (also known as “pensions simplification”) brought some very welcome alignment of Self-invested Personal Pensions (SIPPs) and Small Self-administered Schemes (SSAS) with each other.
Whilst there are certain features of each being matched with the other (for example, maximum pension scheme borrowing), there remain key differences between the two types of arrangement, and those differences can shape an advice firm’s recommendation to a client.
This article will look at SIPPs and defined contribution SSASs to help explore the question of whether a client should consider a SIPP or a SSAS.
What features are the same across a SIPP and SSAS?
Contributions
Tax-relievable pension contributions to both are constrained by the Annual Allowance (AA), and, if applicable, the Money Purchase AA (MPAA) and Tapered AA (TAA).
Member contributions to both are constrained by the member’s pensionable earnings if gross contributions in excess of £3,600 per annum are to be made.
Carry forward rules are the same for both SIPP and SSAS and have changed repeatedly in recent years.
Retirement benefits
Flexi-access Drawdown (FAD), Capped Drawdown (which was in place prior to “pension freedoms” coming along in 2015) and annuity purchase can be provided across both SIPP and SSAS.
An option called “scheme pension” might exist in some SSAS and SIPP arrangements, but this, it can be argued, could be regarded as obsolete these days given that members can take as much income as they like through FAD.
Previously, one of the drivers for use of scheme pension was to maximise the member’s income from the pension arrangement.
Death benefits
The same range of death benefit options can apply to SIPP and SSAS. Dependant’s scheme pension from a defined contribution or defined benefit scheme will be out of scope of Inheritance Tax (IHT) for deaths on or after 6 April 2027 under legislation passed into law in March 2026.
Most other forms of death benefits will form part of the deceased’s estate for deaths on or after 6 April 2027.
Investments
With the exception of certain loans and certain share acquisitions, the range of permissible investments is broadly the same across SIPP and SSAS.
These exceptions, of course, might be the driver for one vehicle to be used instead of the other, and they will be considered further below.
What are the key differences between a SIPP and a SSAS?
A SSAS is an Occupational Pension Scheme (OPS) – a SIPP is not
As an OPS, it requires a “founder employer” to create it – generally a limited company (rather than a partnership). A SIPP does not have a founder employer.
A SSAS can make loans to the sponsoring employer
SSAS trustees can make loans to employers that participate in the scheme, subject to the strict conditions laid down by HMRC. SIPPs cannot make loans, directly or indirectly, to connected parties.
This difference alone might be the key driver for a client to opt for a SSAS rather than a SIPP. There is however a common ground between the two vehicles, as both a SIPP and SSAS can lend monies to unconnected parties.
Different rules around some share purchases
A SSAS is constrained by self-investment rules that prohibit more than 4.99% of the fund value being used to acquire shares in a company owned, or controlled by, a SSAS member.
Such a restriction does not apply to SIPPs, but other due diligence considerations could rule-out the purchase by either vehicle.
The multi-member structure of a SSAS can create greater flexibility
SSASs can be, and often are, multi-member schemes, whereas SIPPs are generally individual arrangements per member.
As a multi-member arrangement (a “common trust fund”), a SSAS can offer an advantage over SIPP when it comes to finding or creating liquidity with which to pay transfer values, retirement or death benefits and, from 6 April 2027, the scheme’s proportionate share of an Inheritance Tax bill.
This is because any member within a SSAS can look to any asset held by the SSAS trustees to assist with benefit payments.
An example: Using SSAS asset flexibility to pay Member Death Benefits
Where SSAS trustees own an array of assets – like commercial property, a platform investment, unquoted shares and cash deposits – the more liquid of these can be used to meet the member’s benefit payments if required, and if agreed by all member trustees unanimously.
This is the case even if a member’s fund value has been calculated with reference to the investment returns achieved across all of those assets.
This flexibility does not exist in an individual SIPP and may require assets to be sold, perhaps at an inopportune time, to pay benefits, Inheritance Tax and so on.
When is a SSAS more efficient than a two SIPPs for asset reallocation?
This potential flexibility is sometimes the driver for a SSAS rather than SIPPs, particularly where there is a significant age differential between the members, and liquidity for the older member’s benefits needs to be planned for.
Intergenerational planning of this nature can be more efficient and cost-effective in a SSAS than it would be across two SIPPs.
An example: how notional reallocation in a SSAS avoids SDLT, VAT, and legal costs
Where a commercial property is involved, if it is notionally reallocated in a SSAS from one member to another – in exchange for other assets of the same value – there would be no Stamp Duty Land Tax (SDLT) (in Scotland, Land and Buildings Transaction Tax (LBTT)) liability, no VAT implications (if the property is opted to tax), and limited legal work needed.
Contrast this with a property held across two SIPPs, where one member’s SIPP formally buys out the other member’s share, with all the attendant costs such as SDLT / LBTT, VAT, additional legal fees and so on.
It should be noted that from 6 April 2027, most unused pension funds and death benefits from defined contribution schemes will be brought within the scope of Inheritance Tax.
It is important for clients to seek specialist or regulated financial advice on how this could affect any intergenerational planning strategies.
Much will depend on a client’s individual needs, of course, but there is no doubting that both SSASs and SIPPs offer considerable flexibility, and both should be on the radar for corporate (i.e. limited company) clients especially.
Stephen McPhillips, Technical Sales Director, Dentons Pension Management Limited
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