When it comes to self invested pensions the SSAS (Small Self Administered Scheme) is often seen as the less popular cousin of the SIPP (Self Invested Personal Pension).

We are not sure why this is, and it is probably a question for another day, but we thought we would start by comparing the two self invested options to see where the differences lie.

SIPP

SSAS

Trust basis

The member joins a Master Trust with the scheme rules set by provider for all members. An individual trust  is set up for each scheme and the rules can be tailored to the needs of the members, providing of course they are within HMRC rules.

Eligibility

Only FSA regulated providers with the appropriate permission can set up a SIPP.Anyone can join a SIPP but members must be a “relevant UK individual” to receive tax relief on contributions. A SSAS is not regulated by the FSA.A SSAS must have a sponsoring employer when it is established; this can be a limited company, partnership, LLP or other entity as long as they have at least one employee who will join the scheme.If necessary there can be multiple sponsoring employers.

Anyone can join the SSAS by invitation of the trustees; membership is not restricted to employees of the sponsoring employer.

As with a SIPP each member must be a “relevant UK individual” to receive tax relief on contributions.

Loans

A SIPP can make a loan to an unconnected third party on commercial terms. The loan must be secured on an acceptable asset.No loans to connected parties are allowed. A SSAS can make a loan to an unconnected third party on commercial terms, again this needs to be secured on an acceptable asset.A SSAS can also make a loan to the sponsoring employer provided:

  • It is secured with a first charge
  • The term is no longer than five years
  • The maximum loan is not more than 50% of net scheme assets
  • The loan is arranged on a capital and interest basis with equal annual instalments
  • The minimum interest rate charged is 1% above the average base lending rate of six leading high street banks

Unlisted share purchase

A SIPP can purchase shares in an unlisted company provided the member does not, on his or her own, or with connected parties, have control of the company. Furthermore their shareholding, and that of connected parties, must be below 20%. The rules for a SSAS purchasing shares in an unlisted company are the same as for SIPP, but if the shares are in sponsoring companies there is an additional restriction that only 5% of the fund value can be invested in each company up to a maximum of 20% of the fund being used in total.

Pooled investment

SIPPs can be grouped together for joint investment e.g. a property purchase.Each member has an individual SIPP so can hold assets separately as well as having a share in the pooled investment. A SSAS is a single trust and all investments are jointly owned. All members must agree on all investments and earmarking is not permitted.This can be easier for succession planning as transfers out/benefit payments can be taken from anywhere in the fund not just from an individual’s allocation.

Pooled investment can however cause difficulties where members have different attitudes to risk and disagree on investment types. Members closer to retirement may wish to adopt a more conservative investment strategy than younger members.

Property

A SIPP can invest in commercial property, which in turn can be let to a third party or to the business of the SIPP member. In either case the property must be let on commercial terms.A SIPP can borrow up to 50% of the net scheme assets of the fund. The rules for property purchase in a SSAS are the same as for a SIPP.

Protected Rights

A SIPP can accept protected rights and be used for full self investment, including property purchase. A SSAS cannot accept protected rights.It is possible to establish a SIPP to hold protected rights alongside a SSAS and for the two plans to make joint investments such as a property purchase.

Bev Stoves & Sarah McCarthy, Independent Financial Advisers, Investment SenseWant to know more?

Our team of self invested pension specialists (right) are here to help you make the right decision between a SIPP and SSAS.

If you are considering buying a property in a SIPP, would like to know more, or have a question you would like answering, call the SIPP team today on 0115 933 8433, and ask for Bev Stoves or Sarah McCarthy.

Alternatively submit an online enquiry or send an email to info@investmentsense.co.uk