If you interested in an SSAS (Small Self-Administered Scheme) then you probably have a lot of questions such as how does it SSAS work; what tax relief does a SSAS provide and how does a SSAS compare with a SIPP?
Here we attempt to explain SSAS to help you be more informed before you speak to a financial advisor about whether they it’s the right choice for you.
SSAS Explained: What exactly is an SSAS?
Known as a small self-administered scheme, a SSAS is a type of occupational pension scheme. These schemes are based on trusts – they are established individually, but usually by limited companies and directors.
A SSAS that is registered with HMRC can be tax-exempt, with all investments free of capital gains tax; while contributions also receive tax relief as long as they are made by a “relevant UK individual.” With a basic rate, the tax relief can be claimed through the SSAS while higher rates can be claimed through a tax return.
SSAS Explained: SSAS v SIPPs
What is the difference between a SSAS and a SIPP? Usually, a SSAS will be set up by a limited company for its directors and owners, as they are a pooled money purchase pension scheme relating to occupations. They are primarily designed for high paid employees and company directors although there are opportunities for other individuals and family members to be part of the scheme.
As a SSAS is occupational, it has to be established by employers with all members of the scheme referred to as trustees or directors. There can be up to 12 members of a SSAS in total.
Much like SIPPs they do not face expensive administrative costs and broadly they are regulated in the same way. However, there are a handful of differences:
– With a SSAS there is the ability to make secured loans to the employer: it is also possible to invest around five per cent of the fund’s value into shares with the sponsor company.
– There is no FCA regulation with a SSAS – although they are usually registered with the pensions’ regulator.
– With a SSAS trustees do not need to provide money purchase illustrations as long as all of the members are actual trustees.
– With a SSAS it is possible to have non-allocated funds – refunds can be made minus the 35 per cent tax rate.
SSAS Explained: What are the advantages and disadvantages of a SSAS?
What really sets a SSAS apart from other pension schemes is the facility to lend to a sponsoring employer. This is largely seen as the main advantage for setting up this scheme.
However, there are other advantages. In particular, individual trusts can be set up based on each individual scheme with the ability to tailor rules based on individual needs. As assets are pooled, it is easier to carry out succession planning too. They will also generally have more liquidity than SIPPs – particularly in cases where a commercial property is in ownership.
Nevertheless, this does lead to some negative issues too. For example, when assets are pooled it can be difficult when members have different risk profiles. In addition, despite the greater capability for inheritance, there is no privacy.
Costs can actually be more for high net worth individuals who are accustomed to housing their wealth in trusts. However, when SSAS works like a family trust with lots of members and encompasses different generations, these costs are no longer an issue.
Administratively however, they are not as efficient as SIPPs as they require annual reporting: and with each member as a trustee it can be difficult to keep finances discreet.
SSAS Explained: What to look for from a SSAS provider
If you are considering taking out a SSAS pension, then you should first seek independent financial advice.
Any provider that you can consider should meet the guidelines and rules outlined by the FCA: indeed they should clearly be an FCA member. A good provider should be able to guide you about annuities, income withdrawals, contribution levels and the suitability of investments.
In addition, the provider should work closely with the client offering up-to-date information on changes to pension legislation. They should supply members with advice about the retirement options that are available to them as well as providing regular valuations.
Look for advisers that specialise in SSAS and SIPPs and that provide a transparent and easy to understand charging infrastructure without profits on property management or percentage charges – which are common among many advisers. Remember that in the current market too it’s important to look for providers with financial strength and security. Should you wish to find out more based on your individual investment strategy then you can contact Unite now who can put you in touch with a professional financial advisor.
PLEASE NOTE: This article is meant to be a general guide to SSAS. It is not to be constituted as financial advice. If you are considering taking out a SSAS seek independent financial advice first.