Taking control, greater investment flexibility and cost are just some of the many reasons why SSAS is becoming the self-invested pension of choice for many people.
Background to SIPP and SSAS
SSAS (small self-administered scheme) was the original type of self-invested pension, predating the more widely known SIPP (self-administered personal pension). SSAS has been around since the 1970s. The first SIPP arrived much later after the Inland Revenue set the rules and conditions in 1989.
As with other types of pension regulated by HMRC, SSAS benefits from generous tax privileges. Little wonder then that SSAS was popular from the outset when it was launched. In 1974, the highest permanent rate of tax stood at an eyewatering 98 per cent, just below the higher ever rate of Income Tax when the rate peaked at 99.25 per cent during the World War II.
In more recent history, the enormous rise in popularity of the SIPP market has overshadowed SSAS. Today however, most SIPPs are arranged by online platforms that often severely restrict your investment choices principally to mainstream stockmarket assets.
If you’re serious about diversifying your pension money across a wider range of asset classes, such as commercial property and alternative investments, you’ll need a full SIPP or more likely a SSAS to do it.
Despite-of the large SIPP market, investment in SSAS isn’t small. It’s estimated to be worth in the tens of billions of pounds. And since pension freedoms were introduced in April 2015, SSAS has been making a notable rebound in popularity.
Set out below are the six reasons why you might want to consider a SSAS in 2017.
1. Gives you control
Differing from a SIPP, which operates a “sole trustee” model, all SSAS members are usually scheme trustees. This means you have more of a say in the running of the scheme. By way of example, a SSAS administrator cannot choose its preferred panel of specialists. Compare that to the situation facing some SIPP holders who’ve invested in commercial property, whose SIPP operators require them to use a particular property management firm, often at increased cost.
On the death of a SSAS member, the decision as to where any death benefits are distributed would be that of the trustees. In a SIPP, the decision rests with the SIPP operator, often as sole trustee, who may (or sometimes may not) take account of the ‘expression of wish nomination’.
2. Perfect for funding business growth
Perhaps the greatest advantage of SSAS over SIPP is its ability to be able to grant a secured loan to the company of up to half of the fund value of the SSAS. The SSAS can also be used to purchase shares in the business. You simply can’t do either of these within a SIPP, thus providing a SSAS with a significant edge for companies requiring business funding.
Another advantage for SSAS is that it can also make an “in-specie” contribution that qualifies for Corporation Tax relief just as for a cash contribution.
For example, a business owning a commercial property could transfer the ownership of the property to the SSAS in order that rental income and any property appreciation accrues free of tax. This could provide the business with a healthy and immediate cashflow advantage. The purchase of the property could be completed in a combination of any or all-of the following:
- Through a loan to the SSAS
- “In specie” contribution that could be up to £40,000 per member (Annual Allowance 2016/2017)
- Via liquid investments within the SSAS
3. Better for asset allocation
For a SIPP, your investments are clearly owned by you. In a SSAS, the investments for all the members are held at the ‘scheme’ level which means no member has the right to a specific asset. This can be handy for exit planning and when you’re looking to mitigate potential charges.
A point to consider; a scheme could hold a commercial property and liquid investments in equal value. An exiting-member could notionally be allocated the liquid investments. The commercial property could therefore remain in the SSAS, not only preventing it from being sold at perhaps an disadvantageous-time, but also enabling any rental income to be notionally allocated to the remaining members, which may make an appropriate investment strategy for the non-retired members.
4. Gives substantial cost savings
Where two or more people have a shared interest, such as directors or key staff in business together, or families looking to pass on assets to future generations, a SSAS can be a highly cost-effective solution.
A SSAS only has one scheme charge, even though there could be several members. The combined cost of a collection of SIPPs used by multiple directors to purchase a commercial property is generally much higher.
A purchase of a commercial property by a SSAS is one transaction, including one set of legal fees and disbursements. A group of directors using their SIPPs to purchase a commercial property will duplicate the legal fees and disbursements, as each director’s share of the property is purchased separately by their own SIPP.
When an employer pays the SSAS fee, they can claim the charge against its profits, thus reducing its corporation tax bill in the process. With a SIPP, the fee is usually deducted from the fund value. Not only could the employer’s tax bill be a bit higher, the director has less money invested in his pension fund once the SIPP fee has been applied.
Since the trustees of a SSAS have the freedom to select their own professional partners and negotiate fees themselves, costs can easily be kept to a minimum in this area as well.
5. Delivers increased investment flexibility
In the main, SIPP operators and SSAS administrators adopt a similar level of due diligence over the investments allowed within each self-invested pension. Importantly a SSAS is free from the Financial Conduct Authority’s identification of investments as either a standard asset or a non-standard asset.
The cost implication for a SIPP operator allowing non-standard assets is now so prohibitive, many firms will either not allow them to be held, or will charge you an excessively high fee for the privilege. This now severely restricts the investment flexibility of the SIPP when compared to a SSAS.
Currently most SIPP operators do not permit alternative investments, which are defined as non-standard assets to be held, whereas a SSAS administrator isn’t subject to the same draconian restrictions.
6. Wins hands-down for succession planning
As well as having your say as a member and a trustee of the SSAS in any death benefit distribution, it can be useful for the SSAS to admit non-member trustees to provide further protection and influence over the decision as to who should benefit.
Since pension freedoms came into force, and particularly for family businesses, a SSAS can be a very tax efficient means of accruing, protecting and finally passing on your pension money to your future generations, irrespective of whether your spouse or children take an active role in your business.
Is a SSAS the ‘must have’ for 2017?
In a word, yes! New for 2017 is the Advantage SSAS from Avantis Wealth. The Advantage SSAS is set to be an integral part of our new Financial Advantage Program and is designed to deliver a substantial financial benefit to company directors across the four key areas of:
- Performance investment
And will be worthy of your consideration as it offers all six of the reasons outlined in this article.
To register your interest in the new Advantage SSAS, which offers the compelling reasons set out above, and to receive our new special report on the Financial Advantage Program*, simply complete the form here.
To receive a call back from a member of our investment broker team to discuss setting up a SSAS, complete the form here.
*Available end of February
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As always this article is not to be deemed as advice. It is the writer’s personal opinions. No decisions should be made based on the contents of this article but further professional advice should be sought from a regulated financial advisor. The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.
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