A defined contribution workplace pension utilised by directors of limited companies for themselves and specified employees, the Small Self Administered Scheme (SSAS) can be an all-important tool for both long-term retirement planning and aiding in the further development of businesses.
Having been a pension option for company directors for over 40 years, with a SSAS, the members – of which there can be no more than 11 – are in control of where their pension funds are invested, allowing for greater flexibility than standard pensions.
And a core benefit of a SSAS – on top of the usual pension tax reliefs, which includes up to a 25% contribution from the Government – is that they can be used to invest into and offer loans to the sponsoring business, as well as a wide range of other assets.
When deciding whether a SSAS could be the right pension option for you, there are several features to consider, and as with all investments, exploring them all is key to ensuring you make the most appropriate decision for your requirements.
Important note: All information provided is for educational purposes only, and is not personal tax advice. Always speak to an independent financial advisor before making any investment or pension-related decisions.
A SSAS is most suitable for business directors looking for more control over their pension investments
As a SSAS is set-up and self-managed by the director of a business – who will also often be the scheme administrator – it provides retirement benefits for themselves and a small number of members made up of employees and their family members.
In addition to the scheme administrator, a SSAS is run by trustees. These are often the members, but can also be appointed independent trustees with a professional understanding of pension legislation.
The lack of involvement from outside organisations such as financial institutions gives members of a SSAS increased control over their pension investments, meaning they are most suitable for those able and willing to make their own investment decisions.
The usual pension tax reliefs are available through a SSAS
Whilst a SSAS has a number of advantages that set it apart from standard pensions, they also benefit from the same, well-known tax reliefs.
All contributions to a SSAS are eligible for tax relief, with up to a 25% tax top-up for basic-rate taxpayers – meaning for each £1,000 paid into a SSAS, the Government adds £250 – and the ability to reclaim additional tax relief through your tax return if you are subject to a higher rate of tax.
Permitted investments are free from income tax, and no capital gains tax is due on the disposal of investments. You are also able to withdraw the first 25% of your SSAS pension fund as a tax-free lump sum, or receive 25% of each withdrawal tax-free.
As with all private pensions, you can’t begin to start drawing benefits from a SSAS until the age of 55.
From an organisation’s point of view, employer contributions are tax deductible and there is currently no employer contribution limit or restriction based on employee earnings, as long as the contributions are ‘wholly and exclusively for the purpose of the business’.
SSAS pensions can be used as a vehicle for business growth
Perhaps one of the most substantial benefits of a SSAS are the opportunities for business development they afford.
A SSAS can be used to grant a secured loan to the sponsoring business – of up to 50% of the fund value of the SSAS – or to purchase shares.
This is a valuable and tax-efficient means of using the scheme as a vehicle for business growth, whether the business is in need of a general injection of capital, or funds for specific requirements. As a SSAS is often able to hold commercial properties and land, this could include the purchase of office premises, which can then be leased back to the sponsoring business.
A SSAS can invest into a wider range of assets than standard pensions
Along with more control over where the SSAS pension fund is invested, the trustees also have more investment options, including a number of non-standard assets.
Whilst each SSAS provider will have their own specific rules and criteria in regards to eligible assets, a SSAS can, in general, hold:
property and land (including via a property bond)
loans back to the sponsoring business
unit trusts or other regulated collective investments
trustee investment plans
direct quoted entities
shares in unquoted private companies
Deciding whether a SSAS is right for you
For business directors looking for a pension scheme which allows them – and their core staff members and families – to reap the tax-efficient benefits of a standard pension whilst also giving them control and flexibility over where their funds are invested, a SSAS could be a valuable consideration.
This is especially true when taking into account the opportunities for using a SSAS to aid in the progression and development of the sponsoring business – a benefit that few other private pension schemes boast.
As always, it’s important to seek independent financial advice when looking to make investment and pension-related decisions, but understanding the core features of a SSAS is crucial when considering your options.