When we think of self invested pensions our thoughts immediately turn to a SIPP (Self Invested Personal Pension). However, the SIPP’s lesser known cousin, the SSAS (Small Self Administered Scheme), seems to be making a bit of a comeback.
A SSAS has always had the same investment powers at a SIPP, indeed in some circumstances, especially for loans, it is more flexible. Despite this SSAS’s have for some years lagged behind SIPPs in popularity, but over recent months they seem to be making something of a comeback.
So, just why are SSASs rising in popularity again and why should you consider a SSAS if you are thinking of using a self invested pension?
Protected rights abolished
Until the turn of the tax year a SSAS could not accept transfers of Protected Rights money, which was built up in pensions after the owner had opted out of the State Second Pension or its predecessor, SERPS (State Earnings Related Pension Scheme).
A good proportion of people have Protected Rights in their pension which, until the start of the new tax year, automatically ruled out a SSAS as an option.
However, the distinction between Protected Rights and non Protected Rights was abolished at the start of the 2012/13 tax year, meaning that a SSAS can now take in transfers in exactly the same way a SIPP can, creating a far more level playing field.
Cost compared to family SIPPs
A Family SIPP is the collective noun adopted by many SIPP providers for the grouping of individual SIPPs.
Until recently groups of people wanting to buy commercial property, who had Protected Rights in their fund, had no choice but to use SIPPs. However, after the change discussed above, a SSAS is now a viable alternative, particularly when we consider charges.
A SSAS was always considered to be a more expensive option and indeed if you are comparing one SSAS with one SIPP it probably still is. However, when you start comparing multiple SIPPs under a Family SIPP arrangement, against a single SSAS with multiple members, the picture changes and the SSAS often looks to be cheaper.
We asked InvestAcc, a provider of both SIPP and SSAS’s, to compare the charges of a Family SIPP arrangement with a SSAS, for a range of member numbers. The table below shows the result.
|Number of Members||1||2||3||4||5|
|Minerva SIPP Year 1||£400||£800||£1,200||£1,600||£2,000|
|Minerva SIPP Year 2 onwards||£400||£720||£1,080||£1,440||£1,500|
|SSAS Year 1||£2,350||£2,350||£2,350||£2,350||£2,350|
|SSAS Year 2 onwards||£850||£850||£850||£850||£850|
All the above fees are subject to the addition of VAT, currently at 20%, and include grouped member discounts where applicable.
InvestAcc say: “The individual Minerva SIPP will always be cheaper than a separately registered plan that is designed for larger groups of people. However, for three or more members the InvestAcc SSAS does become more attractive from a charges point of view.”
“With SSAS, the number of members does not alter the amount of the charges, although legislation restricts a SSAS to have no more than 11 members.”
The effects of the credit crunch can still be felt by small businesses when they apply to their bank for a loan; despite various government initiatives banks still seem reluctant to lend money.
Many business owners have put money away in pensions during the good times and some would now like to have greater access to this capital, in preference to going to their bank, to help their business.
Whilst a SIPP can lend money, it can only do so to a third party and not a connected individual or business; that rules out a SIPP lending money to your business. However there is no such rule for a SSAS, making it a more obvious choice for a business owner who may want to borrow money from his or her pension to help their business.
There are clearly downsides to a SSAS loan, not least if the business fails and repayments cannot be met. However, in these days of ever tightening lending criteria and seemingly endless hurdles put in the way by many banks, it can be an attractive option for some.
The abolition of Protected Rights, the costs of a SSAS v a Family SIPP and the more flexible loan arrangements, combine, in our opinion, to herald the return of the SSAS as a serious rival to the traditionally more popular SIPP.
Our team of Independent Financial Advisers in Nottingham are experienced in advising on the most suitable self invested pension option for your circumstances. If you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org