SMALL SELF-ADMINISTERED SCHEMES (SSAS)
A Small Self-Administered Schemes (or SSAS) is an occupational pension scheme primarily aimed at shareholding Directors of companies.
Perhaps the greatest benefit of a SSAS to Company Directors is the ability to control the investment held within the pension fund. As well as insurance funds and other packaged investment plans (such as unit trusts), SSAS’s are allowed to invest in quoted equities, warrants, gilts and other financial instruments, and cash deposits. A favored SSAS investment is Land and Commercial Property (which may be let back to the sponsoring company), investments in companies (previously up to 30% of the share capital, but now limited to 5% for new investments after 06 April 2006) and loans (at a commercial rate of interest) back to the Sponsoring Company. The Scheme may also borrow up to 50% of its net asset value (usually for Commercial Property purchases).
There is no tax liability on the investments within the SSAS; property is also exempt from Capital Gains Tax upon realization. On retirement, the rules are now the same as for every other pension scheme. Members can retire from age 55, and can secure their benefits by way of annuities, or Drawdown Pension. The previous restrictive rules on taking benefits directly from a SSAS have now disappeared.
Post 2015 Pension Rules
The ability from April 2015 to draw as much as you like from your pension funds also applies to SSAS members.
This, combined with the abolition of the 55% tax charge when pension benefits pass to a non-dependent beneficiary upon death, means that for family businesses, SSAS are likely are offer greater scope for succession planning.
How a SSAS is structured
SSAS are established as Trusts and the members (these being the selected Directors/senior employees) are the Trustees. Previously, it was an Inland Revenue requirement that a Professional Trustee (known as a Pensioneer Trustee) be appointed, but after 06 April 2006 this is no longer a requirement (although some SSAS providers may still insist upon this point).
Despite changes to pension legislation in 2006, the underlying operating structure of SSAS's will remain very similar to what is was before. As mentioned above, the biggest change is relaxation of requirement to appoint an independent trustee. However, most SSAS's will probably still retain an independent trustee, due to the fact that the SSAS reporting rules are complex, and most company's / director's will not have the time or understanding to undertake this themselves - along with the fact that getting it wrong could have serious implications - i.e. fines levied by HMRC for breaches of the rules.
The Trust Document and the Rules of the Scheme must be in accordance with the HMRC requirements - it is the HMRC who approve each Scheme and grant it 'approved status' which gives the Trustees the tax advantages which comes along with this status - namely freedom from income tax and capital gains tax on investments held within the pension fund.
Other post 06/04/2006 legislative changes
One positive change has been the move to bring contribution levels into a SSAS in line with all other pension schemes.
Individual members can now contribute up to the lower of 100% of salary or £60,000 in any tax year, but contributions made the employer will still need to be verified by the scheme actuary, and now probably referred to the local HMRC inspector if the contribution is of a sizable amount.
Overall, SSAS's are still subject to Occupational Scheme rules, which are more onerous than the rules applied to Self-Invested Personal Pensions
Despite the complexities, the reasons for using a SSAS can be summarized as:
- Profits made by investments within the pension scheme are exempt from Tax.
- Flexibility of contributions - in line with how much the business can afford.
- Contributions are Tax deductible for the sponsoring company, and contributions by the members will attract tax relief.
- You may use the Fund to purchase the Commercial Premises from which your business trades or operates.
- On property resale, the asset is FREE from Capital Gains Tax.
- Funds tied up in existing pension arrangements may be transferred to a SSAS, thus improving the investment scope available via self-investment.
- Assists in the smooth transfer of your business to the next generation.
- It could reduce the Inheritance Tax liabilities of individual family members (however, see paragraph at the bottom of the page).
- They are very suited for family members who are involved in the same business - it provides a mechanism to provide pension benefits for different generations of the same family, and pass down the scheme assets for their benefit.
- SSAS's will still be able to make loans to back to the sponsoring business, unlike a SIPP (although this has now become more restrictive, as the loan must be secured upon an asset).
Overall, a SSAS can be a complex and expensive pension arrangement to run. However, if they are adequately funded, and the ability to invest in property and other investments is taken advantage of, they can be extremely tax-efficient and profitable pensions vehicles. Professional advice should always be taken before setting up a SSAS to ensure that it is an appropriate vehicle that will meet your requirements.
While it is expected that SIPPs will become the pension of choice for many Company Directors over the next few years, due to a lighter amount of administration, regulation and reporting involved, SSAS's will remain a viable option for some - namely family members who are prepared to pool their substantial pension assets.
April 2008 Update
As indicated in the 2007 Pre Budget Report, if as a consequence of the death of a member while in receipt of a scheme pension or lifetime annuity a connected person receives an increase in their pension rights under the scheme, such a re-allocation of funds will be treated as an unauthorised payment. On death after age 75 any unauthorised payment made will also be liable to IHT bringing it into line with the tax treatment of Alternatively Secured Pension (ASP).
It is proposed that schemes with at least 20 members, and where the increases in pension rights are applied equally to all members, will be exempt. Effectively, this move has been designed to prevent individuals or family memebers using the 'Scheme Pension' facility as a way to avoid the restrictions and punative tax charges associated with Alternatively Secured Pensions.
April 2011 Update
Members, at retirement, who have sufficient entitlements with the SSAS and elect to take their pension via a Drawdown Pension basis are able to use Flexible Drawdown as a way to significantly vary their income in retirement. Alternatively Secured Pension no longer exists, and the potential 82% tax-charge on death after age 75 no longer applies. This has been replaced by a blanket 55% tax charge upon the payment of lump sums.
Also, members who wish to make large individual contributions can now use the Carry Forward facility to sweep up unused personal allowances from previous tax-years. See the Carry Forward Calculator page for more information.
Please refer to the document on Drawdown Pension and also the document on pension simplification for a general outline of the changes in pension legislation that have taken place.
NOTE: This document is intended to provide a brief overview of the subject. It should not be read as a recommendation to use any particular product, as it does not take into account individual circumstances and attitudes.
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