XafinityIn this month’s blog for Investment Sense, Jeff Steedman, Head of SIPP & SSAS Business Development at Xafinity outlines the key differences between SSAS (Small Self-Administered Scheme) & SIPP (Self-Invested Personal Pension) and what market trends they are seeing in today’s self invested pension market.

Emerging trends in 2014 in the SSAS & SIPP world

SIPP & DFM (Discretionary Fund Manager) There are many advisers who are deciding against “fund picking” and this is leading to an ever increasing use of DFMs. The low cost “simple SIPP” structure offers the perfect wrapper to outsource the investment responsibility to the DFM, but keeping the pension under their advice.

SIPP & pension consolidation This is not as much of an emerging trend, but one that is likely to remain prominent in the SIPP market for many years. Many clients move job five or more times in their career and with Auto Enrolment firmly underway, this is likely to offer more pension consolidation opportunities

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Commercial property & land of all shapes and sizes Whilst the ‘simple’ SIPP has its place, the ‘full SIPP’ remains a critical product for clients with more sophisticated needs. We continue to see innovative clients embarking on new ventures, using their pension funds to support them achieve their goals, for example:

  • the purchase of “Eco Camp Sites”
  • night clubs which have been purchased and re-opened
  • traditional SIPP & SSAS purchases of haulage yards, industrial units, and factories

Joining forces At Xafinity, 67% of our SSAS have more than one member where are assets are then pooled and a massive 40% of our full Xafinity SIPPs have two or more members invested in the same asset, mostly property.

SSAS investment As well as commercial property investments, we have seen other assets being used as 1st charge security including plant & machinery, artwork, as well as commercial and residential property.

Fit & Proper person test We expect the forthcoming “fit and proper persons test” (being introduced in 2014) to impact “orphan” SSAS i.e. those who don’t retain the services of a professional SSAS provider. Clearly some are trying to run their pension schemes themselves and this evidently won’t be good enough in future.

SSAS versus SIPP – the history books

SSAS dominated the “self invested” pensions market in the 1980s and 1990s until its younger cousin, the SIPP, came to the fore in the mid 1990s. The SIPP’s ability to attract the self employed, partnerships as well as being available to directors and key employees of limited companies has meant that it dominates the market today.

In 2014 the SIPP has evolved into a widely used product for all types of clients, from those just starting out in pensions savings, to the high-net-worth / sophisticated end of the market where millions of pounds are held in individual SIPPs.

SSAS remains available and absolutely the right product for many clients, albeit there are perhaps only 10 proper professional providers. It’s to one of these that advisers with no experience should gravitate, to be properly supported in understanding the product and its implementation in certain client circumstances.

SSAS versus SIPP – the main differences

To start, let’s remind ourselves of what “common parts” SIPP & SSAS have:

  • Ability to accept “transfers” from other pension schemes
  • Contribution limits/rules
  • Capped & flexible drawdown rules / limits
  • Death benefit rules/limits
  • Investments including land, commercial property, listed & unlisted shares, FCA approved investments, products, bank deposits and Unregulated Collective Investment Schemes
  • Borrowing limits
  • Pension scheme bank account is set up to co-ordinate all financial transactions

The main differences

SSASSIPP
LoansSSAS loans for up to 50% of the net assets of the scheme to the employer are allowed. 1st charge security is required. No other connected party lending is permitted. There is no limit for loans to unconnected parties.

Examples of a connected party are:

• A member or spouse or relative of a member

• A partnership where one of the partners is a member or a relative of a member

• The SSAS Principal Employer
A SIPP can’t lend to a connected party. There is no limit for loans to unconnected parties.

Examples of a connected party are:

• A member or spouse or relative of a scheme member

• A partnership where one of the partners is a member or a relative of a member

• A Company controlled by any of the parties detailed above
ControlThe employer has overall control of the scheme, with the Administrator having day-to-day responsibility for its operation. The SSAS Member Trustees make the SSAS investment decisions.The SIPP provider has overall control of the scheme, with the Administrator having day-to-day responsibility for its operation. The SIPP member makes the investment decisions.
InvestmentsThe investments are registered in the name of the SSAS trustees.

The SSAS employer will, through the Scheme Rules, determine which investments are allowable. For example, some SSAS permit unquoted shares whilst others do not.
The investments are registered in the name of the SIPP trustee company.

The SIPP provider will, through the SIPP rules, determine which investments are allowable. For example, some SIPPs permit unquoted shares whilst others do not
Allocation of InvestmentInvestments are not allocated to specific members.Investments are allocated to a specific member.

Why use Xafinity?

Great products, properly supported by professionals, in a company with more than 30 years in this field. But it’s our personal service that stands us out from the crowd.

We have a dedicated support structure designed to ensure you and your clients receive a first class experience from first contact to ongoing administrative support.

Feel free to call me, Jeff Steedman (07989 627767), or Simon Perry (South West) 07436 75970 Matt Storey on 01786 237017 for a quick ‘tech chat’ about the various property scenarios that come across your desk

About the author

Photo - Jeff Jeff Steedman is the Head of SIPP & SSAS Business Development for Xafinity overseeing a team of BDM’s. His knowledge comes from over 27 years in pensions including positions held in sales, senior management, technical and administration with several UK pension companies. He has specialised in the SIPP & SSAS sector for 21 years in various roles including supporting financial advisers and their clients. Jeff has been with Xafinity since 2004 and has a wealth of knowledge at all levels of SSAS and SIPP consultancy.Xafinity is one of the UK’s leading specialists in pensions and employee benefits. Our expertise includes pensions and actuarial services, flexible benefits, SIPP and SSAS, and healthcare. Xafinity has managed SSAS since 1979 and SIPP since 2004 and we have built a hugely experienced and growing team, with 50 + specialised staff based in Stirling. Xafinity administers SIPPs and SSASs for around 4,000 clients and this includes around 1,500 commercial properties, a specialist area of self-invested pensions.

The all-important small print

Investment in property is a long term one and at times, markets may prove to be illiquid. It may not therefore be possible to realise an investment at a time of your choosing and any forced sale could produce returns that are considerably below market valuations.

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