What are small self administered schemes (SSAS), how do they work and what else should paraplanners know about them? Stephen McPhillips, technical sales director, Dentons Pension Management Limited, answers some of the frequently asked questions about this pension vehicle.
I have had the privilege and pleasure of presenting to many paraplanners at Professiopnal Paraplanner’s Technical Insight Seminars around the country this year and in the recent past. A piece of feedback that is frequently received (both verbally on the day and in the formal feedback following the event) is that delegates often have had little or no operational exposure to SSAS in their careers to date. That’s not a major surprise to me, as SSAS is often regarded as a niche product, and it should really only be used by clients for whom a SSAS fits the bill.
The following is a list of questions that are often asked in relation to SSAS, which will hopefully provide a useful insight into this type of Registered Pension Scheme:
What is a SSAS?
A SSAS is an occupational pension scheme that gives its Member Trustees considerable flexibility and control over the investment policy and underlying assets.
It is a bespoke pension scheme created specifically for an employer and will require a package of bespoke paperwork to be produced. Registering a new SSAS with HMRC can take several weeks/months.
How many members can a SSAS have?
To ensure a SSAS qualifies for various legislative exemptions and has as much investment flexibility as possible, it can have no more than 11 Members.
We would recommend that each member should be a Trustee of the Scheme and all their decisions should be made by unanimous agreement. Although there is no lower or upper age limit for Members, there is a minimum age of 18 in order for the Member to act as a Trustee.
Who can be a member of a SSAS?
A person eligible for membership of the Scheme should become a Member by invitation from the Trustees.
Every employee, ex-employee, officer or ex-officer of a sponsoring employer might be eligible for membership of a SSAS.
Can a partnership or Limited Liability Partnership (LLP) establish a SSAS?
As noted above, a SSAS is an occupational pension scheme established by an employer for the benefit of selected directors / employees. Whilst in theory a SSAS could be created by a partnership or an LLP, it could only include employees of the partnership / LLP and not the partners.
This usually means that the individuals who wish to be included in the SSAS cannot actually be included because they are not employees of the entity that has created it.
How many Sponsoring Employers can a SSAS have?
If required, a SSAS can have multiple sponsoring employers. There must be links between the various companies that wish to participate in the same SSAS.
These can include common shareholding / common directorship and any company wishing to participate in the SSAS must make contribution(s) to it in order to justify its inclusion / participation in the scheme.
Does a SSAS need a Professional Trustee & Scheme Administrator?
A SSAS does not need a Professional Trustee, but each SSAS requires a Scheme Administrator (an official role required by HMRC for Registered Pension Schemes). However, having a Professional Trustee involved in a SSAS can be helpful to the Member Trustees, who can benefit from the Professional Trustee’s knowledge and expertise to make sure that the SSAS is administered correctly in accordance with legislative and HMRC requirements.
The Member Trustees and a professional independent trustee (if appointed) might together be the ‘Scheme Administrator’ for HMRC purposes. To be appointed as Scheme Administrator, each Trustee will need to qualify as a ‘fit and proper person’.
The Scheme Administrator’s role is (among other things) to:
• register the scheme with HM Revenue & Customs (HMRC)
• report events relating to the Scheme and the Scheme Administrator to HMRC
• make returns of information to HMRC
• provide information to Scheme Members and others regarding the lifetime allowance, benefits and transfers
• generally undertake such other tasks so as to maintain the beneficial tax status of the SSAS.
How long does it take to establish a SSAS?
A key part of the process to establish a SSAS is to register it with HMRC. This can take several weeks or months.
There can never be any guarantee that HMRC will accept and register a Scheme, following its checks on the employer that is creating the scheme.
What is a SSAS “Practitioner”?
A SSAS “Practitioner” is an individual or company that usually provides a guidance-only service to the Member Trustees.
It does not normally become co-trustee, joint Scheme Administrator and joint signatory to the SSAS Trustee bank account, and does not take on the responsibilities that these roles entail.
Will a SSAS work as a family scheme?
A SSAS can serve as a planning tool for family businesses where children of some / all of the Members become directors / employees of a sponsoring employer.
A SSAS can be particularly helpful for creating liquidity because of its pooled nature; for example, older Members wishing to access the more liquid assets for pension commencement lump sums / pension payments, can look to these assets within the scheme and, perhaps, less liquid assets (of equivalent value) can be retained within the SSAS for younger Members.
Why use a SSAS?
Under current legislation, a SSAS enjoys considerable tax benefits. A SSAS can also provide flexibility in relation to the investment of scheme funds and the provision of benefits to Members and their beneficiaries.
Beneficial features of a SSAS include:
• employer and member contributions normally qualify for tax relief subject to certain requirements
• investment income and gains (other than dividend income) are generally exempt from UK income tax and capital gains tax (CGT)
• lump sum benefits on a member’s death will normally be free from inheritance tax
• when taking benefits, a tax free lump sum of up to 25% of the member’s share of the SSAS fund is normally available, subject to the member’s remaining lifetime allowance. In a small number of cases this could be more than 25% of the fund/lifetime allowance depending on individual circumstances
• fees for the administration of the SSAS can be paid by the sponsoring employer and it should be treated as a business expense.
How does a SSAS differ from a SIPP?
Although they share some similarities, SSAS and SIPP have different legal structures and investment options. As noted above, a SSAS is an occupational pension scheme and it is created using a bespoke package of documents specific to that individual employer.
On the other hand, a SIPP, is a self-invested personal pension, which might have several thousand Members, each of whom has an individual fund which is legally ring-fenced from all other Members.
There are also some differences in terms of investments that can be made; for example, SSAS loans to employers.
