SSAS is still very much alive and kicking, says Emma Fitzmaurice of The Company SSAS
The self-invested market has experienced a lot of press attention since the A-Day pension simplification of 2006 – but most of this attention has tended to be focused on the SIPP schemes, with little regard for their older, wiser, occupational big sister, the SSAS. And that’s a pity.
All the more so, since the recent industry storms raging over SIPP providers and their responsibility for numerous risky investment choices have left the SSAS market relatively unscathed – and have in fact sparked a renewed interest in its potential. Which would come as no surprise to anyone familiar with the regard and appeal in which it has been quietly held in the marketplace during these last 30 something years.
There are many reasons why the good old SSAS pensions can still play a powerful part in pension planning and business growth – yet the facts remain darkly overshadowed by rumours of archaic rules, of extensive and inflated charging structures, and of stuffy Professional Trustees. The truth, though, is quite the opposite, and the SSAS is still very current. As I hope to show you.
Bob The Company Builder
With the present onset of auto-enrolment workplace pensions, it stands to reason that company directors may be focusing on their own pension provisions – some of which will be in old-style schemes whose charging structures are no longer balanced out by the annual growth rate.
Take for example Mr Bob, who left his previous employer to set up a limited company and start his hire company. As the company starts to do well, Mr Bob opens a SSAS with his new company Bobs Hire Limited, and he builds a fund from new contributions together with a transfer of previous pension funds. Mrs Bob has been working in the accounts office, and she decides to join the scheme to maximise the contribution potential from Bob’s Hire Limited and to increase the size of the fund.
This could have been done through a SIPP, of course; but the benefits of using the SSAS to house both Mr and Mrs Bob’s pensions are twofold.
Firstly, the fees associated with the SSAS are now shared between two members; and, secondly and most importantly, the fund size to be invested on behalf of the SSAS is now larger and without the need to register with joint investors.
One day, Mr Bob’s landlord decides to put the office up for sale, and Mr Bob seizes the opportunity to purchase it with the SSAS. Mr Bob Jnr, who now also works for Bob’s Hire has joined the scheme to help swell the value – and so each proportionately own a part of the property.
In time, Mr Bob Jnr marries, and his wife, although not employed by the business, also becomes a member by transferring in her personal pensions. This could not have come at a more suitable time, actually, as Mr and Mrs Bob have decided to take it easy and partially retire. Their tax free cash is funded by the pension transfers from Mrs Bob, and the rental income funds the pension income.
This means that Bob’s Hire can continue to work from the office buildings owned by the SSAS, with no immediate concerns about the need to sell them to a third party to fund the pension income. The asset now starts to form the backbone of the pension for Mr Bob Jnr and Mrs Bob, and potentially for their children.
Succession Planning
Succession planning is one of the defining reasons that a family run business may choose the SSAS option. It not only ensures a good size fund and opens up asset options; it can also guarantee generation after generation of financial planning. With there no longer being a need for a member to be an employee of the sponsoring employer, the flexibility really can work for generations – allowing assets such as commercial property to be passed down and introducing clients beyond, family members and business partners.
One-Person Plans
Nor is the SSAS’s relevance limited to families and business partners. With the recent arrival of one-person SSAS products that bring charges into line with the SIPP market, the SSAS has become more competitive in the marketplace – and of course, value for money is a more compelling selling point than it has ever been.
With the final wave of auto-enrolment workplace pensions for smaller companies now pending, it’s apparent that the SSAS is likely to be an attractive consideration for those who wish to opt out. Sole directors, key directors or other lone pension savers with a stake in a limited company aren’t likely to remain passive about their pensions, but it’s equally unlikely that they will wish to join NEST or any basic alternative to NEST.
This is where the SSAS comes into its stride, with features that can better the traditional SIPPs for the ‘right client’. Naturally, that ‘right client’ will sometimes need to consider both SIPP and SSAS as an option – but, on the whole, they will be two distinct groups considering that an SSAS needs to be sponsored by a Limited Company or Partnership at its outset.
Company Loan Backs
Company Loan Backs have become a critically attractive feature of the SSAS over the last five years – not just because of the incredible strains on limited companies’ finances, but more crucially because of the unwillingness of banks to make loans without charging extortionate rates of interest. The members of a SSAS (being trustees) are entitled to extend a loan to a Sponsoring Company – or indeed, to any other Company – up to a maximum of 50% of the SSAS’s combined funds.
More importantly perhaps is that, as long as HMRC criteria are fulfilled, most notably the requirement for First Charge security, then the pension can enjoy a steady growth from the interest payments which can then be reinvested in turn.
Cost Effective Alternative
Even in cases where there is no use for a Loan Back, or for a connected unlisted share purchase, the SSAS is still a cost-effective pension scheme with very versatile investment potential. As such, it should be considered as part of any good business plan because of its potential for reducing corporation tax liability.
In a profitable year, this advantage, coupled with the option to carry forward unused pension allowances from the three previous years, can be very beneficial. A good example of this might be where a company wishes to purchase its commercial property with company cash. Alternatively, the cash may be used as a pension contribution, enjoying the tax relief, while the SSAS purchases the property, enjoying rental growth in a tax free environment with no capital gains on the eventual sale of the property.
