4 reasons a SSAS could be a beneficial pension choice for small and medium-sized business owners

By Jo Bentham2nd August 2021

For small and medium-sized business owners looking for a pension scheme that not only offers the usual tax-efficient benefits but also allows opportunities for business growth, the Small Self Administered Scheme (SSAS) could be a crucial consideration.

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In addition to up to 45% tax relief on contributions and the option to withdraw 25% of the fund tax-free as a lump sum or across separate withdrawals, when used to its maximum a SSAS – which is setup and self-managed by a business owner for up to 11 members including themselves, employees and family – can facilitate the scaling of businesses and often target higher potential returns than more traditional pension schemes due to its allowance of some alternative investments

From greater control for member’s over the assets held, through to the ability to make loans back to and purchase shares in the sponsoring business, the advantages of a SSAS can be considerable – and there are four core reasons in particular why a SSAS could be a beneficial pension choice for small and medium-sized business owners. 

Important note: the following is for educational purposes and is not pension advice. For that, it’s advisable to speak to an independent financial advisor.

 

1. More control and flexibility over investment decisions

When looking at the structure of a SSAS, it is common for the business owner who set up the scheme to be the administrator, whilst the members act as trustees. 

This results in less involvement from outside parties with regards to the allocation of funds, meaning there are ample opportunities to select investments that are best suited to the needs of both the members and the business. 

This also means it’s important that the owner and members of the SSAS are comfortable making investment decisions, and it is also possible – and advisable, though not essential – to appoint a professional trustee who has an understanding of pension legislation. 

As well as this, the investment options available with a SSAS are much more comprehensive than most traditional pensions, with some allowing the likes of property bonds, shares in unquoted private companies and even shares in the sponsoring business to be held.

With the exact assets permitted differing provider-to-provider, speaking to your SSAS provider or an independent financial advisor for more information is key.

 

2. Opportunities to make a loan back to the sponsoring business

This is where, for small and medium-sized business owners, the SSAS can be significantly more beneficial than the likes of a Self-Invested Personal Pension (SIPP)

In order to grow, small businesses often require an injection of capital – whether that’s for specific equipment needs, or just working capital – and with a SSAS, the sponsoring business is able to make this loan back to themselves. 

To make a loan back to the business, it must be secured and can be up to 50% of the SSAS’s fund value. For example, if the SSAS value was £500,000, the business could receive a loan of up to £250,000. 

In addition, all loans back to the business must have an interest rate. Members are able to select the exact rate, but it must be a ‘commercial rate’, which means it is 1% above the average base rate of the six leading high-street banks. 

This results in more being paid back into the SSAS than was loaned – advantageous in helping to build a strong pension fund.

 

3. Ability to purchase shares in the sponsoring business

A SSAS is able to hold shares, including those in unquoted private companies. Investing into these unquoted companies, though requiring a higher risk tolerance than listed companies, can result in targeting more notable returns – with investment into startups often targeting a minimum of 10x money-on-money, it can be an important consideration when looking for potential long-term capital growth to bolster a retirement fund. 

But it’s the ability to hold shares in the sponsoring business that can showcase the strength and potential of a SSAS. When doing so, as long as the value does not exceed 5% of the fund value of the SSAS, it is possible to own up to 100% of the business’s shares.

The benefits of purchasing shares in the sponsoring business are plentiful. To start, similarly to purchasing shares in other, unconnected companies, owning shares in your own business is an investment with the potential to target strong capital growth. Generally speaking, the more successful a company becomes, the greater the value of their shares, providing investors – such as the SSAS – an opportunity to see their investment grow if and when a liquidity event, such as a trade sale or IPO, becomes possible. 

In addition, whilst making a loan back to the sponsoring business – as discussed above – is an option with the potential to be advantageous to both the business and the SSAS fund, purchasing shares could be a preferable method of inward investment as there are no regular loan payments to consider. Whilst such loan payments are beneficial for the SSAS, for the company they may be an expense.

 

4. Owning commercial property to loan back to the sponsoring business

Another valuable tool for business growth and expansion, a SSAS allows the purchase of commercial properties – a favoured, popular asset amongst experienced investors – which can then be leased back to the sponsoring business.

As a business scales, it is common for it to outgrow office premises and require upsizing. And as long as the business’s SSAS fund is of the same value or higher than the premises it’s looking to purchase, buying through a SSAS can be cost-effective and pension-boosting. 

Once the premises is owned by the SSAS, the business will take up a commercial lease, with rent payments added straight back to the SSAS fund – meaning all payments are put towards the growth of the scheme’s pension fund instead of outside parties.

Whilst the use of a SSAS pension in this manner – to purchase commercial property for you to occupy – is commonplace, the wider benefits of such possibilities cannot be overlooked. For instance, the commercial properties a SSAS purchases can be leased to other businesses, allowing the pension to effectively create a portfolio of commercial properties that provide a continued stream of funds into the pension by way of rental payments (and, should the opportunity arise in the future, capital growth if the properties are sold).

 

Choosing a SSAS as a small and medium-sized business owner

For small and medium-sized business owners looking to take a more hands-on role in the management of their retirement fund whilst harnessing it to expand and improve their business, a SSAS is unrivalled. 

The scheme has the potential to provide all the must-have, tax-efficient pension benefits to its members at the same time as enabling valuable methods of business growth on both a financial and tangible level.