What are the differences between a SIPP and a SSAS pension?

Both benefiting from the standard tax-efficient advantages of a pension, it's the greater choice and control over where funds are invested that make the Self-Invested Personal Pension (SIPP) and Small Self Administered Scheme (SSAS) so popular with experienced investors.

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Whilst a SIPP and a SSAS each allow investors up to 45% tax relief on contributions and the option to withdraw 25% of the fund tax-free – whether as a lump sum or in separate withdrawals – once the age of 55 is reached, there are some significant differences between the two, differences it’s important to be aware of when considering one as part of a retirement plan. 

Please be aware, the following is for educational purposes and is not pension advice. For that, it’s advisable to seek out an independent financial advisor.


The structure of the pension and who can open one differ

Among the core differences between a SIPP and a SSAS are their structure and who they are available to. All UK residents under the age of 75 can open and add funds to a SIPP, and in general, a SIPP will follow a similar structure to a standard personal pension – the pension provider acts as the administrator and trustee, and each member has their own, individual SIPP account. 

With a SIPP, the individual member makes their own investment decisions – although it is possible to hire an investment manager to oversee the portfolio – and can invest into a wide range of assets, subject to the provider’s rules and regulations.

On the other hand, a SSAS is an occupational pension scheme that is setup and self-managed by a business owner for themselves, their employees and selected family – up to a maximum of 11 members. It’s common for the owner to be the scheme’s administrator, whilst the member’s act as trustees. 

Most often with a SSAS, a professional trustee with an understanding of pension legislation will also be appointed, but though this is advised, it is not essential. 

Furthermore, whilst each individual has their own pension pot with a SIPP, this is not the case with a SSAS as it is a shared fund where each member's share is defined with a percentage.

Though the structure differs, the outcome is the same – more control over the allocation of retirement funds for experienced investors who wish to take a more active role in management of their pension. 


Eligible assets for both pensions are wide ranging – but different

What makes a SIPP and a SSAS similar is the increased choice over investments, but there are some differences (as well as similarities) over the assets each can hold. 

Permitted assets will differ on a provider-to-provider basis, but one main advantage of both a SIPP and a SSAS are their ability to hold non-standard assets such as property bonds – again, provider dependent – making way for increased portfolio diversification and the potential for higher returns than are often targeted with mainstream investment options. 

On top of this, most SIPPs can also hold:

  • stocks and shares

  • investment trusts listed on a stock exchange

  • open ended investment companies (OEICs) recognised by the Financial Conduct Authority (FCA)

  • gilts and bonds

  • exchange traded funds (ETFs) traded on the London Stock Exchange or other European markets

  • bank deposit accounts

  • commercial property

  • real estate investment trusts (REITs) listed on a stock exchange

  • offshore funds


Meanwhile, a SSAS can hold:

  • commercial property and land

  • loans back to the sponsoring business

  • industrial units

  • agricultural land

  • unit trusts or other regulated collective investments

  • investment trusts

  • trustee investment plans

  • direct quoted entities

  • shares in unquoted private companies

  • OEICs

These lists are not exhaustive, nor will all providers permit the listed assets – speak to your SIPP or SSAS provider, or an independent financial advisor for more information.


A SSAS can be a vehicle for business growth

One of the major benefits of a SSAS for business owners – and one that is not available with a SIPP – are the opportunities to make a loan back to the sponsoring business, as highlighted above. 

This loan must be secured and can be up to 50% of the fund value of the SSAS. For example, a business with a SSAS fund value of £200,000 could receive a loan back of up to £100,000, whether that's for working capital or specific equipment needs. 

As well as this, a SSAS is able to purchase shares in the sponsoring business, and has the potential to own 100% of the business’ shares as long as the value doesn’t exceed 5% of the SSAS value.

Moreover, there are opportunities to purchase commercial property such as office premises which can then be leased back to the business.

As an example, if a business with a SSAS had outgrown their current premises and found a more appropriate office space for sale at £500,000 and the SSAS fund was the same value or higher, the business could purchase the premises, meaning it’s owned by the pension.

Then, the business will take up a commercial lease with the pension, and each time rent is paid, the funds are added straight to the SSAS – a tangible investment as well as a vehicle for business growth.


Using a SIPP or a SSAS for retirement

For experienced investors looking to take a more hands-on role in the management of their retirement fund, both a SIPP and a SSAS have clear benefits on top of the generous pension tax incentives already available. 

But although there are core similarities between the two, a SIPP and a SSAS are different vehicles suited to different investors. Whilst a SIPP could be the most appropriate option for individual experienced investors searching for a pension that allows them to invest into a wider range of assets, a SSAS could prove much more beneficial to small business owners looking for a pension vehicle that can also support business development.

There is no one-size-fits-all when it comes to choosing where and how to invest for retirement, and understanding the options available – and speaking to an independent financial advisor – is crucial.