What is a small self-administered pension scheme (SSAS) and is it right for you and your business?

A small self-administered scheme (often referred to as a SSAS) is an occupational pension scheme with a few key differences.

Usually set up by the founder or directors of a business, a SSAS isn’t suitable for everyone. It’s limited in terms of who can set one up and benefit from it.

However, if you or a family member runs a UK business or is part of its directorial team, it could be a valuable way of investing.

What is a small self-administered pension scheme (SSAS)?

As we mentioned up top, a self-administered pension scheme is an occupational pension scheme, meaning it’s a type of pension set up by an employer to provide pensions for the people who work for the business.

While all employers must, by law, offer a workplace pension for their employees, a SSAS is an optional scheme set up by and managed independently by the directors of a business.

There are a few reasons why you might choose to set up a SSAS, which we’ll explore later. A SSAS allows members of the scheme greater control over how their pension pots are invested, including being able to use pension funds to invest in the business.

A maximum of 11 people can join a SSAS (hence the “small” part of the acronym!). Because they’re so limited in membership size, they’re a more common choice of pension scheme in family-run businesses or small start-ups.

Who can open or be part of a small self-administered scheme?

To establish a small self-administered pension scheme, you need to set up a limited company with Companies House. Sole traders or people who are not involved in the senior leadership of a business cannot typically start a SSAS.

If you decide to open a SSAS for your business, you can invite 10 other people to join the scheme. These members are usually your fellow directors but they could also be your employees.

To a point, you’re free to offer membership of your SSAS to anyone connected to the business you believe to be suitable. You can even invite yours or employees’ family members; a popular option for family-run businesses.

Members of a SSAS also become trustees and have equal say in how the funds are invested. This ensures everyone upholds the Pensions Act 1995; legislation created in response to the crimes of Robert Maxwell, who embezzled money from the pension fund of the Mirror Group Newspaper.

How does a small self-administered pension scheme work?

SSAS pensions function similarly to workplace or occupational pensions, with a few key differences.

Unlike a normal occupational scheme, the only people who contribute to the pot are the 11 (or fewer members) of the SSAS. No other employee contributes to or benefits from a SSAS, even if there is one set up at their company.

Members of the SSAS pay contributions as well as the company to the shared pot through their wages. As pension payments, this money is eligible for tax relief.

As with any pension scheme, you can’t dip in and access the funds directly. You can start withdrawing benefits or withdraw a 25% lump sum tax-free when you turn 55.

However, unlike typical occupational pension funds, a SSAS allows you to invest the funds in a range of ways. There’s no pension provider deciding how the pot is invested; those decisions are down to the trustees.

What’s the difference between a small self-administered pension scheme and a self-invested personal pension?

In some ways, small self-administered pension schemes are quite similar to self-invested personal pensions (SIPPS).

Much like a SSAS, a SIPP allows you more control over how the funds in your pension pot are invested.

However, whereas a SIPP is designed to provide an individual with control over how their pension pot is invested, a SSAS is a pooled fund for a small group of people.

Unlike the one-pot structure of a SIPP, a SSAS doesn’t contain any individual pots. Everyone contributes to a single fund and each share is defined by a percentage.

Finally, a SIPP is a personal pension plan, whereas a SSAS is an occupational pension scheme sponsored by a business.

What are the benefits of opting for a small self-administered scheme (SSAS)?

While a SSAS isn’t for everyone, there are a number of useful and potentially valuable advantages to using a SSAS to save for your retirement.

Flexibility over how you invest your pension pot – With a SSAS, you can choose how you invest your pension funds. You can define your own investment portfolio, from stocks and shares to corporate bonds.

You can also use your SSAS to invest in commercial property, including your company’s own business premises. You can potentially purchase commercial property (through your SSAS) and lease it to your business.

Tax benefits – As with all workplace pension schemes, you receive tax benefits from investing in a SSAS. Basic rate taxpayers get a 25% tax top up, while higher earners can claim additional relief on their tax return. Company contributions are normally deductible against profits for corporation tax purposes.

Plus, because most assets you acquire via the SSAS have no tax liability, the final sale on any commercial property you invest in is exempt from corporation tax on capital gains.

The ‘family pension’ benefit – Sometimes referred to as a ‘family pension’, a SSAS allows you to get non-employed family members involved and pass down benefits to the next generation.

• You can hold assets in trust within a SSAS and pay benefits to families even after the trustee has died.
• As a pension, your SSAS is protected from company and personal creditors.
• SSASs can be passed down to the next generation, where beneficiaries can access funds with relative ease.
• Family/beneficiaries don’t need to pay inheritance tax on SSAS funds because the assets are part of a pension, rather than someone’s estate.

Save on provider admin fees – Bypassing pension providers means you may save on administrative and account management fees.

What are the drawbacks of a small self-administered pension scheme?

As a pension scheme, a SSAS is an investment product. As with any investment, there is risk involved and the funds within your SSAS can fall as well as rise.

If you’re not someone who feels confident making independent investment decisions that may involve significant levels of risk, you might not feel comfortable with a SSAS.

Another drawback is the size of the scheme, as you’re limited to 11 members. As an employer, you may be able to establish more than one SSAS, but that’s taking on even more risk and responsibility.

Finally, a SSAS comes with a lot of admin and big decision-making. While some pension providers do offer a SSAS service and can help you run yours, you’re still taking on a lot of responsibility; especially considering you’ll need to liaise and negotiate with fellow trustees on investment decisions.

Should I take out a small self-administered pension scheme (SSAS)?

Figuring out whether a small self-administered pension scheme is the right choice for you and your business can be tough. There’s a lot to consider, both upsides and downsides.

If you’re thinking about establishing or joining an SSAS, why not get in touch with the team at HW Independent Financial Management?

We can offer you and your organisation impartial and informed advice, based on your unique financial circumstances and business goals.