Small self administered schemes have some unique features and these can be of particular importance to some investors.
In recent weeks, this column has discussed Self Invested Personal Pensions (SIPPs) as a suitable retirement planning tool for certain individuals. Small self administered schemes (SSASs) are workplace arrangements and akin to SIPPs in many respects. For example they both offer a wider range of investment options than a conventional personal pension.
But a SSAS is a pension arrangement most likely to be put in place by the owner of a small business. It provides a means through which they can save for retirement, together with their fellow directors and other key employees.
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The SSAS will be set up under trust and with a maximum of twelve members, all of whom will be trustees.
Overall control of the scheme will be the responsibility of the employer and the trustees will be able to make their own investment decisions. There will also be a scheme administrator who is responsible for the day to day running of the arrangement.
All SSASs must be individually authorised by HMRC although, they are not regulated by the Financial Conduct Authority.
Like SIPPs and other defined contribution pension arrangements, a SSAS is able to receive regular contributions, single contributions and transfer payments.
Regular and single contributions from the individual member will receive basic rate tax relief at source and it may be possible for a member to claim additional relief based on their individual tax position. In addition, premiums paid by the employer are a deductible expense for corporation tax purposes.
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Unlike conventional defined contribution arrangements, SSASs and SIPPs are also able to receive ‘in specie’ transfers.
This means that assets such as collective investment funds can be re-registered as assets of the SSAS without having to be cashed in first. This is a useful feature as it means that assets can readily be transferred into the pension tax wrapper.
Elsewhere the range of investment options available under a SSAS is broadly in line with those eligible for inclusion within a SIPP. They are therefore suitable for individuals whose needs are not met by the range of investments available under a personal pension.
In general investors will need to have a relatively high tolerance for investment risk if they are to make use of these additional options.
Whilst there is a broad range of investments that can be included within a SSAS, it is worth being aware of prohibited assets. Notable examples in this regard are residential property and personal chattels such as art and antiques. There are numerous penalties for holding such assets within a SSAS, the most severe being compulsory wind up of the whole scheme.
One of the main reasons why a SSAS may be preferred to a personal pension is its ability to hold unlisted shares. A SIPP is also able to do this and the rules governing both arrangements are quite similar.
The one major difference is that if the shares in question are those of the sponsoring employer, they can only account for a maximum of five per cent of the SSAS’s total fund value. Direct investment in commercial property is also permitted within a SSAS. As with SIPPs, this would be of appeal to a self-employed individual who wishes to use their pension fund to purchase their business premises.
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In such instances the property’s rent would be payable to the SSAS as a pension contribution and treated as an allowable business expense to be offset against profits. The rent will also grow in a tax efficient environment.
Both SIPPs and SSASs can borrow up to 50 per cent of their fund value in order to fund such a purchase. However unique to SSASs is the ability to make loans to their sponsoring employer. The maximum loan amount is once again subject to a maximum of 50 per cent of the fund value and it must be secured on assets with a value at least equal to the loan amount. Amongst the other conditions is the stipulation that the loan must be repaid by equal annual instalments over a maximum five-year term.
The options for taking retirement benefits from a SSAS are in common with other defined contribution arrangements. Ultimately it is the additional investment options, together with the ability to make loans, that will justify most people’s decision to opt for this type of arrangement.
* Trevor Law is a director with Merito Financial Services, chartered financial planners, based in Solihull.
E-mail: tilaw@meritofs.com