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SIPP or SSAS? Why it’s not always clear

Paul Darvill, Director, Talbot and Muir, presents an example where while, at first, one option seemed the right one to take… it wasn’t that simple

SIPP and SSAS are seen by some to be in direct competition with each other, but this really shouldn’t be the case. Whether a SIPP or SSAS is an appropriate pension vehicle for each client, or set of clients, is a decision that should always be made on a case by case basis.

Engaging with a provider experienced in assisting with looking at the merits of each option can be key to deciding which route to go down. Whilst a provider cannot give any advice, early discussions can make the ultimate decision a lot easier and clearer to arrive at.

In the following case study we look at what initially seemed to be a clear decision but without further detailed assessment could easily have ended up being the wrong one.

Case study: The scenario

The Barnes family run a transport firm, and the majority of the family work within the business. However one son, James, works as an accountant in the City, albeit he does assist with the accounts for the family firm. Apart from this he isn’t otherwise involved in the day to day running of the business. The remainder of the family carry out various roles within the firm, including senior management, marketing and administrative positions. The head of the family and majority owner of the company, George, is nearing his 65th birthday and is thinking about his future and how he can start to take a step back from the day-to-day running of the company. The family members have accumulated varying levels of pension savings in their respective arrangements. James has substantial pension savings through the accountancy practice he works for, and would like to assist the family business as it is looking to expand and as such requires a bigger yard in which to store their fleet of vehicles and house a single new office from which the firm can operate. To date, the firm has been working out of various rented properties spread across the City.

The solution

James suggested to the family that their first step should be to engage with an FCA regulated financial adviser to establish the best way to raise funds to buy a plot of land that they have found, which they believe will meet the needs of the business moving forwards. The first meeting with the financial adviser only involved James, George and Alice (who is George’s wife). The number of family members attending the initial meeting was kept deliberately small to ensure that the meeting stayed focussed throughout on the matter in hand.

The initial assessment was that a SSAS would be the ideal pension vehicle to fund the purchase, as all seven family members could join the scheme. The membership can also include James who is permitted to join the SSAS even though he isn’t an employee of the family firm who are acting as the sponsoring employer to the SSAS.

However, discussions are then widened out to include the rest of the family, and although some members were happy to pool their funds as the investment options were discussed, it soon became clear that the risk profiles of the potential members differed greatly. Those with the smaller funds who were in the early stages of pension saving didn’t want to take too much risk, whereas others wished to invest more speculatively.

The financial adviser was then engaged to complete a full fact find and risk profile analysis with all the family members, and although this was time consuming it was necessary to establish if a SSAS really was a viable option for the family. The financial adviser made it clear that a SSAS wasn’t the only option available, and indeed a SSAS could be established for the benefit of some family members, but not others. Other personal pension options, including SIPPs, could be considered for those family members for whom pooling both assets and risk was not appropriate at the present time. It was also noted that not joining the SSAS now didn’t preclude those individuals from joining at a later date should their circumstances warrant this further down the line.

This outcome worked well for all. George, James, Alice and another son, Chris combined their pensions into the firm’s SSAS, using these funds to purchase the land, and renovate the office to make it suitable for use as the firm’s place of business. The firm will pay a market rent to the SSAS, increasing the liquidity in the fund. The remainder of the funds, together with the ongoing rental payments, are invested into a discretionary investment portfolio, which both offers a diversified investment strategy for the SSAS, and aims to build funds sufficient to pay George an income in the next 5-10 years when he steps down from full-time work.

The remaining family members were all provided with their own individual pensions and investment advice to match their personal risk profiles, which as mentioned above differed significantly from their parents and other siblings. As they get older, they may choose to join the SSAS or may continue to invest in their existing personal arrangements.

The whole family will need have their investment strategies and retirement plans reviewed on a regular basis to ensure their needs and risk profiles continue to be met. Retirement planning isn’t a one off decision and the SIPP or SSAS conundrum can produce varying outcomes at differing stages of an individual’s life.

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