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About small self-administered pension schemes (SSAS)

SSAS pension

An SSAS pension – also known as a small self-administered scheme – is a type of pension available for limited companies or partnerships in the UK. It’s taken out by company directors to fund their own retirement, and these directors have full discretion as to how the pension fund is invested.

Business owners often use their SSAS to invest in commercial property (such as their own premises), but many other investment options are available. Here’s more about how SSAS pensions work, and the pros and cons for business owners.

What is an SSAS pension?

A small self-administered scheme is a type of occupational pension that’s managed independently by a company’s directors. It provides retirement benefits to these directors, as well as other senior staff sometimes also to certain family members, regardless of whether they work for the company. Each member usually becomes a trustee, and so has some say over where to invest the money. The number of members is limited to 11, hence the term ‘small’. For this reason, they’re more common in family-run businesses and start-ups.

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How does a SSAS pension work?

SSAS pensions function like most other workplace pensions, with a few key differences.

Like most defined contribution schemes, the employer and/or its members pay contributions, which are all eligible for tax relief. Members can start withdrawing benefits from the age of 55 in the standard way, with the same option of taking 25% as a tax-free lump sum.

However, unlike other schemes, there’s often no pension provider involved. All the members, or trustees, decide what happens with the monies, thus gaining greater flexibility and control. Another key difference is that the benefits of the scheme can be passed down to future generations.

What are the advantages of a SSAS pension?

SSAS pensions offer lots of flexibility, but with the same tax efficiencies as other schemes. These and other benefits make it an attractive option for company directors.

  1.  Investment flexibility and control

You can choose to invest your SSAS pension funds in a wide variety of ways, from stocks and shares to unit trusts, corporate bonds and commercial property. It’s the ability to invest in commercial property that is one of the most attractive features of SSAS, as it can include the company’s own business premises, which are then leased back to you – so you kill two birds with one stone, purchasing a premises while investing for your retirement.

  1.  Tax benefits

SSAS pensions offer the same tax benefits as other occupational pension schemes. For member contributions, basic rate taxpayers get a 25% tax top up, while higher rate taxpayers can claim additional relief on their tax return. On top of this, most assets and investments within the scheme have no tax liability, and any commercial property in the scheme is exempt from capital gains tax on the final sale.

  1.  Cost savings on pension companies

There’s no need to go through a pension provider, so you save on its annual management and administration fees.

  1.  Multi-generational benefits

SSAS pensions are sometimes also known as ‘family pensions’. This is because non-employee family members can join, and the SSAS can also hold assets in trust and pay benefits to families long after the original members have passed. As a pension, it’s also protected from company and personal creditors.

Another benefit is that companies can take out a loan from their SSAS pension to fund their business. The minimum interest rate prescribed by legislation is 1 per cent above the average of the base lending rates of six leading high street banks. This reduces reliance on banks and their related charges.

What are the disadvantages of a SSAS pension?

Here are the main limitations and potential drawbacks of this kind of scheme.

  1.  Small membership

No more than 11 members can join an SSAS pension scheme.

  1.  Legal responsibilities

With no pension provider, the members themselves must act as trustees. They therefore carry the legal responsibilities and liabilities of running the pension and ensuring compliance with pension law.

  1.  Administrative duties

The trustees also have the added responsibility of handling all reporting to HMRC and arranging tax relief collection. However, your accountant can help with this.

What’s the difference between a SSAS pension and a SIPP?

SSAS and SIPP pensions are similar in that both give you influence over how your pension pot is invested. The key difference is in the name. Self-Invested Personal Pensions (SIPP) give an individual control over their investments, where SSAS pensions are for company directors and controlled by all trustees of the scheme. Similarly, the entire pension pot belongs to the owner of the SIPP, where there are no individual pots in a SSAS. Rather, each share is defined by a percentage.

Can I transfer my existing pension to a SSAS pension?

You can transfer an existing pension pot into a SSAS pension. However, it’s a good idea to consult with an independent financial adviser (IFA) first, to make sure it is indeed the right move. They’ll also help you navigate the terms and conditions of transfer, so you’re aware of any possible exit fees.

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What are the costs related to a SSAS Pension?

The costs of setting up a SSAS pension vary, depending on whether you’re using a pension provider or going it alone. If you’re going through a provider, you’ll typically pay an establishment fee, annual administration fee and transfer-in fees if applicable. You’ll also pay fees once you start using the scheme, including fees around purchasing property or borrowing money.

How do I set up a SASS pension?

You need to set up a limited company with Companies House before you can open a SSAS. Once this is done, you’ll:

  • Designate scheme members – Who you add to the scheme is up to you, but they should be current employees or family members of current employees, with no more than 11 members.
  • Appoint trustees – Often, all members are trustees but they don’t have to be, especially if you’re including family members. Trustees are the legal owners of the pension, responsible for the day-to-day operations, so they’ll need to be over 18 and up for the task.
  • Appoint scheme administrators – This person is responsible for reporting to HMRC and ensuring legal compliance.
  • Authorise the scheme – The employer and trustees all need to sign a number of documents, including a SSAS application form, Trust Deed and bank mandate.
  • Register the scheme with HMRC – This ensures you’re eligible for tax relief. You’ll need the details of all directors and trustees, as well as company information including PAYE, company registration and VAT registration numbers.
  • Open the scheme bank account – This will be the trustees’ account where all contributions are received and managed.
  • Start contributing and investing

What are the different ways you can draw a SSAS pension?

At retirement, members of SSAS pensions have the usual pension options for drawing benefits. They can opt to take the first 25% of their share as a tax-free lump sum, and then use the rest of their pension to provide an income – usually either by purchasing an annuity or by setting up a drawdown scheme, or perhaps using a combination of these options.

What happens to my SSAS pension when I die?

A great benefit to SSAS pensions is that they’re an asset which can be handed down through the generations. Beneficiaries can receive assets quickly and easily, and there is no inheritance tax because the assets form part of the pension, not a person’s estate.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.