There are two types of self-invested pension, a SSAS (Small Self-Administered Scheme) and a SIPP (Self-Invested Personal Pension).
Without doubt the SIPP is more popular than the SSAS, but that doesn’t mean there aren’t times when a SSAS isn’t a better option.
We’ve pulled together some thoughts of our own and asked leading industry figures the question, when does a SSAS make more sense than a SIPP?
Group property purchases
When a group of people, such as entrepreneurs, business owners or family members, with a common interest, want to purchase a property, a SSAS can help to reduce cost and complexity.
A SSAS will reduce complexity as it will mean there is one scheme buying the property, rather than multiple SIPPs each buying a percentage. This can also help to save cost, more of which in a moment,
Oliver Bowler of Talbot & Muir, a SSAS provider based in Nottingham, said: “A SSAS will certainly come into its own with small/medium family businesses who want a group arrangement to initially, perhaps, purchase the company premises using the pension fund.”
A SSAS can have several members, whereas a SIPP is an individual plan, this can make the SSAS more economical than numerous SIPPs, all with their own fees.
The breakeven point, where a SSAS becomes more cost-effective than a group of SIPPs, varies with individual circumstances, but your adviser will be able to work out which option is best.
Family groups may also benefit from easier succession planning with a SSAS.
A SSAS has to be set up by a sponsoring employer, to which it can lend money back to. Any loan must be secured by a first charge on an acceptable asset, not necessarily property, it has to be repaid on a capital and interest basis over a five year period and interest must to be charged at a commercial rate.
Commenting on the loan back feature, Andy Leggett or SSAS provider, Barnett Waddingham, said: “Tax legislation only allows loan-backs in SSASs, which is arguably, their best-known advantage over SIPPs. There are strict conditions a loan must conform to for tax-efficiency, but, especially in recent years when owners of small to medium sized businesses have struggled to gain access to credit, this is a major attraction to entrepreneurs.”
Oliver Bowler of Talbot & Muir agrees: “To my mind, the loan back stands out as being a clear differentiator from SIPP and can be a useful tool for businesses who will need extra liquidity from time to time. It must be remembered that the loan back is an investment for the pension scheme and is best used by successful, growing companies and is not necessarily an effective strategy to prop up failing businesses.”
On the back of proposed tighter regulatory controls some SIPP providers are starting to impose restrictions on the type of investments which can be held in their SIPP and in some cases, whether borrowing is allowed to help fund the purchase of a property.
Andy Leggett, again: “A hot issues at present is SIPP operators introducing additional restrictions, beyond those required by the pension tax rules. These may be motivated by the SIPP operator’s own needs. With a SIPP, you are a member of the operator’s scheme and subject to their rules including their changes. With a SSAS, it is your own scheme. We believe it is advisable to have a professional trustee to the scheme. Notwithstanding their steadying hand, we believe that a SSAS professional trustee has more freedom to tolerate certain legitimate investment decisions than a SIPP trustee who is required to undertake more risk related analysis.
But beware, as Greg Kingston of Suffolk Life points out: “Given the regulatory scrutiny of the SIPP market it is puzzling, if not concerning, how the SSAS market continues to remain unregulated. Questions must be asked as to how much potential risk is posed to consumers whilst it is not.”
SIPP or SSAS?
Whilst it’s unlikely that SSASs will ever become as popular as SIPPs, they do offer a useful alternative in some circumstances.
Andy Leggett summarises the situation well when he says: “SSASs have some distinct advantages over SIPPs. The can do loan-backs to the sponsoring employer of the scheme; they can aid succession planning; they may be more economical than a group of individual SIPPs; and they can give greater freedom. Depending on circumstances and priorities, a SSAS may frequently be the better choice.”
If you believe a self-invested pension could be right for you, our team of experts can help you make the right choice between a SIPP or a SSAS.
Firstly, we will confirm whether self-investment is the right option and then whether a SIPP or SSAS would be more appropriate.