Key features of Ssas

A business (often a limited company or a partnership) can set up a Ssas for directors or key employees. A Ssas can have no more than 11 members at any one time and all members must also be trustees to be exempt from many Pensions Act requirements.

Usual benefits available to occupational schemes also apply to Ssas, such as: tax deductible contributions; no tax paid on growth of investments; on disposal of assets, no capital gains tax is payable; tax-free lump sum available from age 55; full flexible access drawdown options available at retirement; and tax-free lump sum on death before age 75 and other death benefit options for dependents and nominated beneficiaries.

In terms of investment choices, the Ssas has all the flexibility of the Sipp, including: commercial property and land; listed and unlisted shares; platform investments; hedge funds, futures and options; and insurance pension funds.

But with Ssas, you get a little bit more.

Ssas can, subject to certain requirements, make loans to the sponsoring employer.

Investments are owned by the Ssas under a trust, separate from the employer which means that the pension scheme assets are safe from creditors.

A Ssas can lend up to 50 per cent of its assets back to a founder or associated participating employer.

For family-owned businesses, Ssas can be an intergenerational planning tool as the assets can be retained intact within the Ssas and passed down to children.

The cautionary note for employer related investments is that the scheme is investing in the success of the company and, if not diversified, it can be an ‘all eggs in one basket’ scenario.

That said, John Keenan, senior manager of Xafinity, says many business owners would much rather back themselves than the vagaries of stock markets and managed funds.

He says employer related investments must, however, stand up to commerciality tests.

Unlike a Sipp, which is a product and integral to the provider, a Ssas is a single freestanding trust, which is largely controlled by the member trustees.

It is possible to use the contributions paid in by the younger generation, to pay benefits for the older generation Martin Tilley

So whereas with a Sipp if problems occur with the provider it is necessary to set up a new Sipp and lift the assets in-specie from the old Sipp to the new one, with a Ssas if problems occur with the practitioner, the member trustees can simply remove them and appoint a new one to their current scheme.

Being an occupational scheme, the fees for administration of it can be settled by the employer as a business expense.

The VAT can also be reclaimed.

This might be important where the member’s annual allowance is being used to the maximum as the scheme fees can be paid in addition to the contribution. With a Sipp, fees are usually paid out of the Sipp funds meaning the maximum annual allowance contribution is reduced by the Sipp fees.

VAT on fees is not often recoverable either with a Sipp.

Where a scheme needs to have multiple members, Martin Tilley, director of technical services at Dentons Pension Management, says a Ssas can be doubly useful. Firstly, he says it would be expected that the younger generation might not have large funds to start off with and so for them, individual full Sipps might be cost prohibitive.

Joining the family Ssas, with even a small amount of money, enables them to participate in the same investment assets as all the other members with relatively little additional cost, Mr Tilley says.

Another real advantage where there is a disparity of ages in the membership, according to Mr Tilley, is where, for example, a property is held as an investment primarily allocated to the older generation.

With Ssas Mr Tilley says it is possible to use the contributions paid in by the younger generation, to pay benefits for the older generation in return for the reallocation of the property, gradually from the older to younger members.

This allocation takes place within the single Ssas trust, so unlike a group of Sipps, Mr Tilley says there is no need to physically move money between various trusts, less administration costs and no possibility of stamp duty on the change of partial ownership.

Claire Trott, head of pensions technical at Talbot & Muir, agrees the fact assets can be pooled can make a big difference to costs and purchasing power of this type of pension scheme.

She says the scheme should be able to tell what percentage of the fund belongs to each member but actual assets are just held in the name of the scheme.

Ms Trott says this can mean, for example, when looking at a property that when it comes to Ssas, there is one name on the title deed and one set of borrowing, making the whole thing easier to administer and sell.

However advisers should also remember there are what can be perceived as downsides to Ssas.

Denton’s Mr Tilley says a Ssas for a single or perhaps two member case might be more expensive than the corresponding single or double Sipp fees.

With Ssas there is also the requirement for a fit and proper administrator, which means since September 2014 it has been a HM Revenue & Customs requirement that the scheme administrator is able to pass a ‘fit and proper’ test.

In reality Mr Tilley says this role is an update of the old pensioneer trustee role from pre-2006 and is designed to protect the members from accidental or deliberate acts that might trigger penal tax penalties.

The cost of such a party could be considered by some as an unnecessary expense, Mr Tilley notes.

With Ssas, Mr Tilley also notes there is the risk of possible abuse.

Because the administrator might not be a trustee and signatory to assets, Mr Tilley says the possibility that pensions liberation or inappropriate investments could be made is greater with a Ssas than with a Sipp, where the provider has overall control of assets and distributions.

In terms of tax benefits, Elaine Turtle, director of DP Pensions, says these are the same as with any other pension scheme.

She says most contributions are paid as employer contributions, so the employer receives corporation tax relief.

If a contribution is paid as a personal contribution, then Ms Turtle says the member receives the standard tax relief at their marginal rate.

She says all investments grow free of income tax and there is no capital gains tax liability when an asset is sold.