When considering pension provision for business owners, it is first necessary to determine whether either a small self-administered scheme (SSAS) or self-invested personal pension (Sipp) is required.
It should be remembered that both these retirement provision vehicles are subject to exactly the same criteria in respect of annual contribution allowances, tax exemptions on growth and benefits as conventional insured or platform based personal or occupational schemes.
While both Sipps and SSASs will provide considerably more investment flexibility, they do so most usually with additional costs and thus only where the greater flexibility of investment will be used are they suitable. There are a number of key questions that will help determine the most appropriate vehicle.
Is there an employer?
A SSAS is an occupational scheme created by an employer for directors, executives and key employees of the business and membership is at the discretion of the employer or trustees.
So for a sole trader or partnership, a SSAS would not be appropriate for the business owner as they would not be an employee for the purposes of legislation.
For them, a Sipp might therefore be the correct choice. The SSAS, however, being an occupational scheme gives it several advantages, which are expanded upon later.
Is ownership important?
A Sipp is a personal pension provided by a duly authorised and regulated product provider. In structure, it is most commonly a single scheme or trust where each individual member has a ring-fenced sub-trust. What is common is that a Sipp is integral to and thus governed by the specific requirements of the Sipp provider.
While the member may have power to request specific investments, the acceptance of them and administrative terms is in the control of the Sipp provider, which may be restrictive.
A SSAS, however, is a free standing trust and while there are many firms able to provide a professional trustee service, they are not compulsory and an employer may create such a trust using appropriate documentation adopting the rules required for a registered pension scheme. Either way, the scheme deed and rules will place control of the scheme most usually in the hands of the member trustees or employer. This ownership and control can be particularly important when it comes to determining how the scheme is operated, and if it becomes necessary to remove the professional trustee or administrator for example, they can be replaced with the trust remaining intact and simple re-registration of the assets being required.
This control extends into all investments including decisions as to where funds may be invested. For example, where a commercial property is to be purchased and owned, the decision of which solicitor, valuer, property manager and insurer should be used are all matters for the trustees – not the product provider. Likewise, who is selected as the default banker and the concentration of investments is under the trustees’ control.