The initials ‘SSAS’ stand for ‘Small Self-Administered Pension Scheme’. If you are a company director, an SSAS pension could be the ideal vehicle for funding your retirement. Company directors sometimes use an SSAS as the vehicle for which to invest in commercial property, but that is only one of many investment opportunities for which they can be used. If you’d like to find out more about this pension option, and how it can be used to boost your retirement fund, please read on.
What is a SSAS Pension and what benefits does it offer?
Small self-administered pension schemes are a type of occupational pension. They are a type of workplace pension, but rather than being expressly for employees, an SSAS is a type of occupational pension that is only available to directors, owners of family businesses, and sole traders. You could liken them to a SIPP, but with far more flexibility when it comes to investment choices – you can even use a SSAS pension scheme to invest in your own business. They first came onto the market in the 1970s.
The main advantages of a SSAS include its tax benefits and the diverse range of assets it can hold. Both points are discussed in more detail below.
Another significant benefit of a SSAS is that members can use it for loan purposes.
Finally, SSASs can be used as a tax-efficient way of passing wealth down to beneficiaries while avoiding inheritance tax.
SSAS pension versus other pension types
The closest other pension to a SSAS is a self-invested personal pension or ‘SIPP’ for short. The similarity between the two pension types is that both grant you influence in terms of what assets your pension scheme holds. The big difference between the two is that whereas a SIPP gives you individual control of your investments, SSAS schemes are controlled by their trustees. An SSAS can include up to 11 members who as well as directors, can comprise staff and family members.
Because a SSAS scheme pension can include family members they are sometimes referred to as ‘family pensions.’ They can hold family assets in trust for long periods, paying benefits to family members years after the founding members have passed away.
How to Set Up a SSAS Pension
If you’re contemplating setting up a SSAS pension scheme, they are slightly different from other types of pensions, so you should talk to a specialist financial adviser. A good place to start is to check out the Association of Members-Directed Pension Schemes (AMPS), where you’ll find a search directory that covers things like SSAS advisors, administrators, banks and professional trustees.
You’ll find everything you need to know at AMPS, but before you decide to do anything, we suggest you check:
- That the SSAS’s trustees are TPR (The Pensions Regulator) registered.
- That the people you will be dealing with are regulated by the Financial Conduct Authority (FCA) and, where applicable, that they are authorised to provide pension advice.
- The Companies House website to ensure that the firm exists and that it doesn’t have any outstanding documents, such as outstanding accounts.
Pension scams are sophisticated and can be very hard to recognise and steer clear of because they often look like genuine, legitimate investment opportunities.
The tax advantages the SSAS pension vehicle offers
The contributions made by SSAS members are eligible for tax relief. If you are a basic rate taxpayer you’ll enjoy a 25% tax top up. If you are a higher rate taxpayer you can claim additional tax relief by completing a self-assessment tax return. In addition, contributions made by employers also attract tax relief, thereby helping to reduce the overall tax liability.
As with all other types of private pensions, being a member of a SSAS pension you can start withdrawing money from your scheme from the age (currently) of 55. In 2028, the age will increase to 57. You are able to take the first 25% of the fund as a tax free lump sum, or in several withdrawals up to the 25% mark. Anything thereafter will be subject to income tax according to the tax bracket relating to your total income for that tax year.
The investment options applicable to SSASs
We’ve already mentioned that SSAS investment opportunities include commercial property. Other investments open to SSASs are:
- Gold: (physical bars or coins, companies involved in gold mining, or funds that track the price of gold).
- Green investments: In the same way that Moneyfarm offers investors sustainable green investment opportunities, SSASs also offer the option for socially responsible investing in companies that operate within strict ESG principles.
- Stocks and shares: For the sake of diversification, a SSAS can invest a part of its funds in stocks and shares, and part in other types of asset options.
For further diversification, a SSAS pension can invest in commercial loans, corporate bonds, government gilts, foreign equities, hedge funds and unit trusts.
Rules and regulations appertaining to SSASs
There is a strict set of rules and regulations that apply to SSASs. They include:
- You must set up a company (or partnership) and be a company director to set up a small, self-administered pension scheme.
- All SSASs must be registered with HMRC.
- Once set up with HMRC, a SSAS will be given a PSTR (pension scheme tax reference).
- Amy monies contributed before the pension has been set up won’t qualify for tax relief.
- If a SSAS has more than a single member it must be registered with the Pensions Regulator.
- The maximum membership of a SSAS is 11 persons. Members can include company directors, senior managers, and members of the family.
- A scheme administrator must be appointed to manage the pension.
- Borrowing limits (loans) are capped at 50% of the fund value.
- Loan interest must be set 1% higher than that of high street lenders.
- Loans should be repaid within 5 years. Failure to do so will result in HMRC penalties.
- A borrower must grant the SSAS the first legal charge on an asset.
Common mistakes in SSAS pension management
There are a number of common mistakes that are often reported relating to the management of SSASs. They include:
- Ignoring regulatory compliance.
- Loaning capital to the company but not applying interest in the right way, or not applying it at all.
- Failing to make loan repayments within the designated 5-year period.
- Renovating or improving a property held by a SSAS using funds held outside the scheme and not declaring them as a contribution.
- Making poor investment choices.
- Not taking succession planning seriously.
A SSAS pension could be the right thing to set up for your family if you are a company director.
Frequently asked questions
What is a SSAS pension?
The initials stand for ‘Small Self-Administered Pension Scheme’. It’s similar to a workplace pension but specially designed for UK company directors. It is also similar to a SIPP but has even more benefits.
How many members can be included in a SSAS?
The maximum number of members is 11. They can be fellow directors, senior company managers, or family members.
What does it cost to set up a SSAS?
There is a 1-off fee of £1,250 (plus VAT)
Do SSASs have tax benefits?
Yes, like all pensions there are several tax-free benefits both in terms of contributions and withdrawals.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
