answers Your Questions: What’s a SSAS?

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"Dear Your Money, I own a family business, on the more diminutive end of the SME scale. Due to auto-enrolment, I am obliged to set up a pension scheme for my employees. I've considered a SIPP, but I've also heard about SSAS. What is a SSAS? Are there any benefits to using one over a SIPP?" Roger, Birmingham

Self-Invested Personal Pensions (SIPPs) are fairly well-known by now – the schemes were introduced in 1989, and quickly soared in popularity. According to current estimates, around £100bn is currently saved in SIPPs. Many will however be less familiar with the product SIPPs effectively replaced – Small Self-Administered Schemes.

“SIPPs were more inclusive, and had more widespread applicability than SSAS,” remarks David Littlewood of Walker Crips. “As a result, SSAS fell by the wayside somewhat. However, SSAS are still relevant today – and an increasing number of people are starting to use them again.”

There are many reasons why a SSAS might suit you and your business better than a SIPP. One key reason could be a desire to take advantage of a rule that allows businesses to borrow from pension assets, at a time when traditional sources of credit can be more difficult to come by.

“The loan facility really sets a SSAS apart from a SIPP,” says David. “Members of a SSAS can loan up to half the money stored in their pension to the company, if it is backed by a security – the business’ premises perhaps, or personal assets.”

Any money loaned to a business by a SSAS member must be used to invest in the business – and that doesn’t mean bonuses for staff, flashy company cars, or a company holiday. “The most common thing SSAS funds are used for is to upgrade, or move, the company office – but that’s certainly not the only purpose,” David notes. “This can be done through a SIPP too, but SIPPs tend to be more restrictive in the commercial property deals that can be entered into than SSAS.”

“Furthermore, businesses that operate SSAS can place their premises into their SSAS, and then the pension scheme rents the premises back to the business. As a result, rental income goes back into the pension, to be reinvested – and any rent paid reduces the taxable income a company pays.”

SSAS also give members greater control over their pension investments; as with SIPPs, where pension money saved through a SSAS is invested is up to the saver – but SSAS give members the freedom to invest 5 per cent of their pension’s value in the company. This theoretically means all of a business’ shares can be owned by a SSAS, if a pension is suitably large.

“With a SIPP, a business pays money into a vehicle they cannot control, or readily access; pension providers set the rules of engagement,” remarks David. “A SSAS, however, is very much your pension scheme – how it’s run, and how the funds within it are used, are your decision.”

However, greater control and freedom come with greater responsibility. The scheme’s owner is liable for ensuring the SSAS adheres to rules and regulations, and all SSAS are subject to strict scrutiny by HM Revenue & Customs to ensure the enhanced flexibility offered is not being misused. As a result, some SSAS founders opt to outsource trusteeship of their SSAS – whether to an individual outside the organisation, or an external company.

There are some key areas of difference between SSAS and SIPPs that might serve as disincentives for SME owners. For one, SSAS differ from SIPPs when it comes to eligibility. Compared to SIPPs, SSAS are a relatively closed shop – the schemes can only be established by company directors, and membership is limited to 12 employees (including the SSAS founder).

Second, SSAS cost more than SIPPs in cash term – but are more cost-effective. “SIPPs generally cost around £600 – SSAS can cost over double that,” says David. “However, SME owners looking to expand or upgrade their business will find the loan facility offered by SSAS a high value prospect. Furthermore, SSAS fees are a one-off cost – you don’t pay extra for adding more people to the scheme (beyond the 12 member total) after you start it. As a result the scheme’s benefits can more than offset the cost differential.”

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