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When SSAS can be more effective for clients than a SIPP

Paul Darvill, director, Talbot and Muir, identifies where a SSAS can be the better choice for clients than using a SIPP

Over the last few years Small Self Administered Schemes (SSAS) have somewhat taken a back seat to Self Invested Personal Pensions (SIPP) in terms of popularity. There are, however, compelling reasons why SSAS can be the retirement savings scheme of choice for business owners and their families.

SSAS have traditionally been considered more expensive than SIPPs. However, a SSAS with several members may actually be equal to or lower cost to operate than a group of SIPPs due to the fact you are running a single scheme as opposed to multiple arrangements.

The many changes to pension regulations that have been introduced since April 2006 (A-Day), mean that whilst SSAS and SIPP are now broadly similar, the two products do still have some differences in terms of their flexibility. It is important therefore that clients are made aware of that.

Unlike with a SIPP, a sponsoring employer can pay the fees for the operation of a SSAS. The fees are a deductible expense against corporation tax and allow the VAT element to be reclaimed by the company.

Also with a SSAS, pension income to scheme members can be processed and paid through the sponsoring employer’s payroll rather than the pension provider’s, which can be more cost effective.

Assets within the SSAS are usually pooled which means they are not allocated to specific members. Instead each member has an entitlement based on a percentage of the total fund.  This therefore enables the Trustees of the SSAS to pursue a consolidated investment strategy which can be far more cost efficient when comparing this to a group of SIPPs attempting to achieve the same objective.

The membership of a SSAS isn’t just restricted to employees of the sponsoring employer, anyone can become a member, although it is usually restricted to a family member or employee of an associated company. The greater the membership of a SSAS, the greater the economies of scale that can be achieved, always bearing in mind that a SSAS must have fewer than 12 members.

If members are pooling investments such as the purchase of commercial property, it is likely to be easier and cheaper through a SSAS than a group of individual SIPPs. With SIPPs there is likely to be the requirement at some point to restructure the percentage ownership between the members, for example when one member wishes to draw retirement benefits, or should there be the requirement to pay out benefits in the untimely event of the death of a member. This can involve costly legal processes. Within a SSAS this is unlikely to happen as the percentage of each asset owned by a member is directly correlated to their overall share of the SSAS. The payment of benefits as mentioned above creates an immediate resetting of each member’s share of the SSAS. Even in circumstances where the assets are earmarked it will be a simple paper exercise and does not involve other members buying-out another member’s share.

Exit strategies at retirement, or even death, are important considerations when looking at pension scheme investments. A SSAS is ideal for passing investments such as property down through the generations of a business or a family where a sale would be detrimental.

Where a member wishes to retire or leave the pension scheme, this can be funded by cash accumulated in the SSAS bank account, or other liquid assets, leaving other less liquid assets such as commercial property intact within the scheme for future benefits.

Should there not be enough cash then it is possible for the SSAS to take out a mortgage against a property it owns to release cash. If this is required then a single mortgage would be required and not one per member as may be the case with a SIPP, and this makes the arrangement more flexible, easier to administer and a lot cheaper.

With a collection of SIPPs jointly owning investments, where one member wants to transfer-out, retire or dies there can be a number of complications. Either the other members have to find funds within their own SIPPs to buy the exiting member’s share of the investment, which could involve multiple mortgages or it has to be sold on the open market which could dilute the control of the investment. It may even prove impossible to find a buyer.

So, depending on the circumstances and investment requirements of each particular client, a SSAS could potentially be a better option than a SIPP.

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