SSAS – what is it and why have one?

SSAS is an acronym for ‘Small Self-administered Scheme’, which is a company pension scheme where the members are usually all company directors or key staff.  A SSAS is set up by a trust deed with rules that allow members and employers greater flexibility and control over the scheme’s assets.

Contributions paid to a SSAS are subject to the same rules as other registered pension schemes.  Consequently there is no limit on the level of member contributions but tax relief is restricted to the higher of £3,600 or 100% of UK earnings.

Tax relief is also limited by the Annual Allowance, which is now £50,000 per annum (2011/12) but in some circumstances, up to £250,000 can be contributed and obtain tax relief. Speak to us if you want to know how.

Contributions made by the employer are also unlimited.  Employer contributions are deductible against corporation tax provided that they are wholly and exclusively for the purposes of the employer’s trade.  If an employer’s contribution is over £500,000 more than the previous year, tax relief may be spread.

Schemes with less than 12 members and where  all decisions are made unanimously or have an independent trustee, are exempt from the trustees’ knowledge and understanding requirements of the Pensions Act 2004 and the member-nominated trustee requirements.  If every member of the scheme is a trustee, the scheme will also  be exempt from the Internal Disputes Resolution Procedure requirements.

That explains what a SSAS is. If you are interested in knowing why you might want one, read on…

Loanbacks

Unlike a Self Invested Personal Pension (a SIPP) a SSAS is the only pension that can lend money to a connected business. This is important for three reasons. Firstly it can provide a good return for the pension scheme above and beyond any cash deposit account (e.g. a 7% interest rate). Secondly it can provide a very low cost source of borrowing for the business with a fixed minimum interest rate for five years of currently only 1.5%. Finally if the funds that are borrowed by the business are used wholly and exclusively for business purposes e.g. new computers then a second lot of tax relief can be granted (double tax relief).

Common Trust

As an unearmarked or pooled fund, a SSAS creates liquidity which is especially important for older members of an illiquid scheme looking to draw benefits. If the main asset of the scheme is say a property then the older members can retire and draw on the rental income leaving the valuable asset intact and without the need to sell it as would be required in an earmarked scheme such as a SIPP.

Bespoke

Every SSAS is individually registered with HMRC and as such the rules on investment and future membership can be determined by the member trustees giving the utmost levels of control especially for families looking to protect and preserve their wealth.

Lower professional trustee and scheme administration costs

Most SSAS administrators charge on a scheme basis and as such for a three member or more SSAS the costs are usually lower than operating individual schemes, like a SIPP.

Lower costs and simplicity for syndicated or joint asset purchase

Not only will there be greater simplicity on a common asset purchase such as property or land through conveyancers, banks and other third parties are dealing with only one scheme so their costs will usually be lower. For example there will be one property administration charge, one loan agreement, one conveyancing fee and reporting on one scheme only rather than the administration burden of part purchase and individual loans and conveyancing.

Increased purchasing power of pooling pension funds

By combining say ten member’s pension funds and using leveraging members will have greater purchasing power and can buy and participate in a significantly larger asset purchase

Contaminated Land

A bit of a rarity this one, but where a property or land is contaminated a SSAS has the flexibility to place a “restriction on title” which means the asset can still be purchased unlike in a SIPP

Allocation of future investment growth

When a member is in scheme pension and has been deemed to have secured his pension income, growth from assets can be allocated to other members (i.e. children) which could help with any tax liability caused by a reducing lifetime limit.

Scheme Pension

This can be a big attraction because ‘Scheme Pension’ pays a higher income and has more flexibility and tax advantages than capped drawdown. This is more readily available through SSAS. Very few SIPPs offer scheme pension while most SSAS do.

As usual, not all straight forward as to what you should do. So, if you have any questions, we’re here to help.

Give either Robin Melley or Gary Matthews a call on 01746 712900.

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