Back to basics: Why, when and where to use a SSAS

31 August 2021

As part of our Back to Basics series of articles, Stephen McPhillips, technical sales director, Dentons Pension Management Limited, examines the structure and use of SSAS when advising clients.

Small self administered schemes (SSAS) have been around for decades, but, for some readers, there may be an air of mystery surrounding them. That’s perhaps because it’s a product that the reader has never had any exposure to in his or her career so far, albeit that it may have appeared occasionally (and briefly) in study manuals.

However, a pension concept / product that has largely stood the test of time for almost 50 years deserves some attention, not least due to the fact that there are thousands of SSAS in existence with thousands of members.

Despite evolving from around 1973 onwards, it wasn’t until 1979 that the then Joint Office of the Inland Revenue Superannuation Funds Office and Occupational Pensions Board set-out some ground rules for SSAS in the form of Joint Office Memorandum 58.

What is a SSAS?

A SSAS is a Registered Pension Scheme as defined in section 150(2) of The Finance Act 2004.  A Registered Pension Scheme is a pension scheme that is registered under part 4 Finance Act 2004.

HM Revenue & Customs’ (HMRC) Pensions Tax Manual (PTM) states: “Each pension scheme is split into one or more arrangements for its members” and that “an “arrangement” is any contract, agreement or arrangement for the purposes of which a scheme holds sums and assets relating to an individual member, and under which benefits are provided. A member may have more than one arrangement under a scheme and an individual arrangement cannot be made under more than one registered pension scheme.”

Hence, a SSAS shares some basic common ground with other Registered Pension Schemes, and readers may recall the above information from my recent Professional Paraplanner article on self invested personal pensions (SIPP). A SSAS, like other Registered Pension Schemes, carries with it a number of tax advantages, including the possibility of tax-relievable employer and / or member contributions, (generally) tax-free investment returns, tax-free capital gains, the possibility of a tax-free lump sum upon crystallising retirement benefits, potentially tax-free death benefit payments to beneficiaries and so on.

It is important to note at this stage that a SSAS is an occupational pension scheme established by an employer for the benefit of selected directors / employees of the employer. Each new SSAS must be individually assessed and accepted by HMRC before it can become a Registered Pension Scheme. There is no guarantee that a new SSAS will be accepted and registered by HMRC, and it can take a number of months for this checking process to take place.

Like all Registered Pension Schemes, a SSAS must have a “scheme administrator” that “is a fit and proper person to be a scheme administrator” (Pensions Tax Manual).

All members of the SSAS should also be trustees of it, and all trustee decisions should be made unanimously.

HMRC classifies SSAS as an “investment-regulated” pension scheme: “An investment-regulated pension scheme is one where the member is able (whether directly or indirectly) to direct or influence the manner of investments the scheme makes.”

In addition – “There are separate tests for occupational pension schemes and other schemes.”

Why use a SSAS?

Given that the tax benefits of a SSAS are generally the same as for other Registered Pension Schemes, it is natural to ask why a SSAS might be favoured over some other type of scheme, and in what circumstances.

In no particular order, the following might be drivers for a SSAS to be chosen:

  • A SSAS can have multiple (up to eleven) members, whose investments within the scheme can be pooled under a common trust fund structure. This pooling of investments can provide additional flexibility – for example, in the case of intergenerational tax planning, to create liquidity for benefit payments to other members. In other arrangements (such as personal pensions, SIPPs, etc.), investments held in respect of a member might need to be sold (at, perhaps, an inopportune time) to create such liquidity;
  • It can offer additional investment flexibility compared to other types of scheme. For example, a SSAS is permitted to lend funds to a sponsoring employer, whereas this facility is not available within personal pension schemes;
  • A SSAS might prove to be a more cost-effective vehicle than some alternatives. That might sound at odds with a general perception within the industry, but it is sometimes the case that a multi-member SSAS holding, say, commercial property across four members could be less expensive than holding that property across four individual SIPPs;
  • As it’s an occupational pension scheme, the costs of administering a SSAS can be borne by a sponsoring employer and treated as a business expense through its Profit & Loss Account.

Why one SSAS might differ from another?

Given the highly individual nature of SSAS, there can be many shapes and sizes available. Some might have an independent trustee formally attached, which acts alongside the member trustees and which also acts as joint “scheme administrator” to ensure that the scheme operates within HMRC’s rules, as well as also ensuring that all reporting requirements are efficiently attended to.

Some might have no independent trustee involved, perhaps where the member trustees / scheme administrator are confident that they can fulfil HMRC’s “fit and proper person” requirements and can also deal knowledgably with benefit crystallisation events, giving members information on the Annual Allowance, Lifetime Allowance and so on.

Some might have a “practitioner” involved in the operation of the scheme, and that practitioner might aim to keep the member trustees / scheme administrator up to date, despite having no official roles within the scheme on a day-to-day basis.

Like many aspects of life, one size does not fit all, and that is certainly true of SSAS.

Professional Paraplanner