A Small Self-Administered Scheme (SSAS) is a defined contribution pension scheme typically established by a limited company. It is mainly meant to help business owners and company directors save for retirement.
- SSAS pensions are frequently used within boutique or family-run businesses.
- A company can only establish one SSAS pension scheme and membership is limited to a maximum of 11 individuals.
- Members of the scheme are appointed as trustees, granting them control over the assets and pension investment choices.
- Members can have an equal or unequal split of assets, based on the amounts each has contributed into the scheme.
We discuss the benefits and key features of SSAS investments below.
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Consolidating Pension Wealth
Members of a SSAS can collectively pool their pension savings for the benefit of the business and also provide more flexible options for retirement. If a company with four directors have individual pension funds of £1m each, they could collectively pool this into one senior management pension valued at £4m. Similarly, they can also pool their annual allowances. For more information on this please see our article on the tapered annual allowance.
Pensions to Complement Your Business Strategy
One of the primary reasons business owners opt for a SSAS is the enhanced flexibility of investment strategies to complement business objectives, unlike traditional pension schemes.
SSAS schemes are permitted to invest in a diverse array of assets. One well-known benefit is the ability to enter into commercial property sale and leaseback arrangements. The company benefits from a capital injection from the pension scheme which can be used to fund business objectives. The SSAS will own the property but can also benefit from rental income from the business,, which is usually tax-free.
Additionally, the scheme has the capability to extend commercial loans or secure loans in its own right, leveraged against the pension scheme assets.
Flexible Retirement & Investment Planning
Business owners often have unconventional retirement plans. They might want to phase out of their business gradually or continue working in a reduced capacity, while also supporting the next generation of company management. A SSAS provides flexibility for retirement planning, allowing members to retire at different times.
SSAS investments can benefit from ‘earmarking’ assets to individual members based on their unique circumstances. For instance, if one member plans to retire sooner than others, the allocation can be tailored not only to their risk tolerance but also to their cash flow and income needs. This approach allows for the simultaneous benefit of different generations within the scheme.
For example, consider a family business SSAS, with parents, children, and even grandchildren as members. If one of the younger members makes a new cash contribution to the scheme, those funds can be attributed to them and potentially invested in long-term growth assets within the pension.
However, if an older member of the scheme requires immediate access to income, the new cash can remain un-invested and used for the parent’s cash withdrawal. In this case, earmarking and reallocation of the existing pension funds can be used to accommodate the younger member’s contribution, ensuring that the scheme’s assets are managed efficiently and aligned with the diverse needs of its members.
SSAS pensions offer the typical tax advantages commonly associated with pension schemes. Both company and personal pension contributions made through a SSAS can be used against a company’s liability for corporation tax.
As noted above, if a SSAS purchases a commercial property and receives qualifying rental income (at a market rate) from it, there would be no income tax charged. On disposal of the asset, there should also be no Capital Gains Tax due.
Upon retirement, SSAS members can still enjoy the standard tax benefits linked to pensions. This means they can access a tax-free lump sum, usually amounting to 25% of their personal benefits.
Death benefits from a SSAS are also tax-free if the member passed away over the age of 75. If before age 75, then benefits are taxed at the recipient’s marginal rate.
The views expressed here are those of the author, who works at Bentley Reid. This is not investment advice and provided as guidance only.
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The above serves as a reminder of the opportunities available surrounding business planning and pensions, However, this is also a highly technical area and you should seek out experienced, professional guidance. At Bentley Reid our Wealth Managers have experience with complex UK pension matters and can work with you to understand your position and provide clear advice.
We’d love to hear from you and by contacting Mike Winstanley or clicking the link below you can arrange a consultation with us. By using Bentley Reid you can be confident you will receive:
✔️ A Pensions expert with considerable experience advising on complex pension, business and income planning for higher earners.
✔️ Investment advice and cash flow planning to complement the objectives and time horizons of all SSAS members.
✔️ Expert advice delivered in a clear and concise way that is easy for you to understand.
✔️ Manage other potential liabilities including tax on withdrawal and your individual risk levels and capacity to accept investment loss.
✔️ Peace of mind that a professional is guiding you through the process.