Small Self Administered Schemes. The benefits of a SSAS.
A Small Self Administered Scheme allows savers to diversify their pension money across a wide range of assets, including commercial property, and benefit from generous tax reliefs and allowances from HMRC. The SSAS market in the UK is worth tens of billions of pounds. But, how did SSASs start, and what are the main benefits of a SSAS?
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In this section
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The SSAS Story
Back in 1979 when HMRC first granted their approval of ‘self-administration’ for the member trustees of small company pension schemes, they brought into being an exciting and highly efficient pension structure ideally suited to directors of many smaller companies. But the freedoms it granted ran contrary to the dominating self-interest of the insurance industry. Member self-administration quite simply was not something they wanted to sell.
So, in the early years following HMRC’s approval of SSASs, only the well-informed – or the well advised – went on to enjoy the benefits (see below). SSASs remained in the shadows, only being recognised and adopted by the few. In fact, it wasn’t until the early 1990s that the real advantages of running your own pension scheme free of insurance company interference and control became more fully appreciated.
SSASs have now become widely recognised as the pension vehicle of choice for those who both own and control their own companies.
Bringing SSASs out of the shadows has been the mission of all of us at PML for more than 30 years. SSASs are our business. If you don’t know about SSASs yet – but would like to know what they might do for you, your business and your family – take a look at some of the benefits.
The Main Benefits
A SSAS can be used to purchase shares in a business or grant a secured loan to a business worth up to 50% of the value of the SSAS fund. Neither of these can be done with a SIPP, meaning a Small Self Administered Scheme is an excellent vehicle for funding business growth.
Members of a SSAS are usually scheme trustees, which means that the members get more of a say in the running of a scheme than would be the case with a SIPP, which operates a sole trustee/operator model. With the latter, for example, SIPP holders who have invested in commercial property can be required to use a property management firm as stipulated by the SIPP operator, often paying higher management charges. This is not the case with SSASs.
Likewise, on the death of a SSAS member, the decision as to where any death benefits are distributed would be that of the scheme’s trustees. The situation in a SIPP is different, as the decision rests with the SIPP operator, who is usually the sole trustee, and is not obliged to take account of the wishes of the SIPP’s members.
A SSAS can be a highly cost-effective solution, especially where there is a shared interest, such as directors who are in business together, or where families are looking to pass on assets to future generations,
The key point is that a SSAS only has one scheme charge, regardless of how many members there are in the scheme. With a SIPP, however, the charges are per SIPP and per director, meaning that the charges for a SIPP tend to be higher.
For instance, a purchase of a commercial property by a Small Self Administered Scheme counts as one transaction, with one set of legal fees. Conversely, if a group of directors use their own SIPPs to purchase a commercial property the legal fees will be duplicated, as each director’s share of the property is purchased by their own SIPP, separately.
In addition, because the trustees of a Small Self Administered Scheme can choose their own professional partners and negotiate fees themselves, costs can often be kept lower in this area than via a SIPP.
The investments allowed within a self-invested pension are determined by HMRC. A SSAS is free from the Financial Conduct Authority’s identification of investments as either a standard asset or a non-standard asset, which gives a SSAS good investment flexibility.
With a SIPP, on the other hand, many operators will not allow non-standard assets to be held, without charging high fees, meaning the investment flexibility of a SIPP is less than for a SSAS.
Why don't I know about SSASs already?
For many years SSASs were the quiet secret of many family-controlled businesses. Lacking the promotional clout of the insurance companies, SSASs quietly secured their position as niche providers of director pensions.
But then in 2006 came the explosion of HMRC’s ‘Pensions Simplification’ revolution…….. and the structure for ‘self-investment’ became accessible to all.
Desperate to retain control of the massive pension investment market, the insurance companies moved smartly into HMRC’s new self-investment freedoms and adapted them to produce an institutional form of Self Invested Personal Pension. SIPPs thus rose in popularity and steadily became an attractive vehicle for employee pension savings.
Meanwhile quietly in the background, SSASs continue untroubled and undisturbed as the company director’s pension structure of choice – bar none.
