Can a SSAS unleash more potential for your business clients?

Peter Collier invites you to imagine what a new business partner can achieve.

There might be between 60 and 80 SIPPs for every Small Self-Administered Pension Scheme (SSAS). One of the reasons for this disparity is certainly that the unique benefits a SSAS offers to its sponsoring business are not fully appreciated or understood. It is time to unleash the potential and help businesses grow.

What is a SSAS? 

A SSAS is a bespoke occupational pension scheme established by a limited company (the sponsoring employer) via a trust deed. Each scheme requires registration with HMRC and is supervised by The Pension Regulator. 

It is over 50 years since the introduction of SSASs. They are used by business owners to keep more control over the investment, administration and decision making of their pension.  

Clients find a SSAS amazingly easy to understand. Company shareholders and directors (usually) become members and trustees of the SSAS. All members must be trustees, and this provides the control that business owners seek; their role governed by rules and often supplemented by a professional trustee. There is no third-party provider who can veto plans.Real control is a key distinguishing feature.  

Partnering the Business and the ‘Family’ 

Many SSASs acquire commercial property as part of the business planning of the sponsoring company.  

On its own that is not a unique feature. It is the wider concepts of pooling of contributions and existing pensions (of directors), pooled investments, the benefit of using the SSAS to lend back to the business and the likelihood of simpler property transactions through the trust structure, that distinguish a SSAS making them attractive to business owners. Connected to this, a SSAS has often been called a family pension – a scheme that can outlive the initial members and the sponsoring employer.  

Directors, and or family members pool their individual entitlements into a single fund creating more ‘buying power’. This provides the opportunity to invest in a commercial property (sometimes buying it from the business itself), which may have been out of reach for one individual. A SSAS can borrow up to 50% of the net value of the ‘pooled’ scheme from connected parties or third-party lenders adding to the funds available. The property purchase is within a single trust, simplifying ownership and cost. 

A commercial rent will be paid by the company to the SSAS which will be tax deductible, as will allowable pension contributions paid by the sponsoring employer. Pension money is used instead of company funds offering cash-flow benefits, whilst no CGT will be payable on the eventual sale of the property. Costs of running the SSAS can also be borne by the company giving further tax relief and VAT savings where applicable. 

SSAS Loan Back 

A big advantage a SSAS enjoys is the unique ability to lend funds back to its sponsoring employer. This is appealing for several reasons: mainly because it allows the interest on the lending to be paid directly into the SSAS as a tax-deductible expense of the business, rather than to a third party. An attractive proposition given the SSAS is just another pocket of the family wealth. 

There are of course key criteria that need to be met, tax charges as an unauthorised employer payment would be incurred if they are not. The loan cannot be for more than 50% of the net value of the SSAS assets; a term of no more than five years repaid with equal capital and interest repayments over the term; with interest rate of a minimum of 1% above base rate. The final requirement can often be the obstacle as the loan must be secured with a first charge over a suitable asset, properly documented, registered and at ‘arm’s length.’ 

Planning and realism are required to achieve the advantages of a loan back. 

Retirement and Generational Planning 

Whilst at the heart of a SSAS is a pension scheme, the seamless cascading down of wealth through generations is another transformative benefit of the single trust concept. 

On the death of a member, their entitlement within the scheme can be left to their chosen beneficiaries who themselves can become beneficiary members of the trust. Assets, particularly those of an illiquid nature such as property, can continue to be held indefinitely still generating income. In the event of any funds remaining on the death of a beneficiary member those assets can be cascaded down to the next generation, also within the single trust. 

Driver or Passenger? 

It’s been said that in a SSAS the member is the driver and with a SIPP they are a passenger. Whether that is a fair analogy is for the reader to decide, but what is true is that SSASs continue to offer an alternative and often advantageous route particularly to family owned, owner managed and SME businesses, to their founders, and to their heirs and successors.