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SSAS Pensions​ – What Exactly Are They?

An Overview. Though it sounds like an even more elite version of the SAS, an SSAS is actually a little more down to earth – It stands for Small Self-Administered Scheme, which is a collective occupational pension scheme (limited to only 11 members) that can be set up by any registered UK employer. It is set up by a deed of trust and is governed by a set of rules, and is registered with customs HMRC as a pension scheme, with all the associated tax benefits and tax relief of a pension scheme.

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Small Self-Administered Schemes and Your Business

SSAS Pensions are an ideal form of pension for many businesses (as well as partnerships) but are not as widely used as stakeholder pensions and SIPP’s, perhaps because most people know very little about them. Though not suitable for every business, they are particularly useful for smaller, owner-managed or family-run businesses that are run as limited companies or partnerships. For such businesses, Small Self-Administered Schemes can be inexpensive to set up, easy to run, flexible and most importantly, tax efficient.

What Does a SSAS Pension Do?

The whole purpose of an SSAS pension is to act as a form of money purchase (defined contribution) pension scheme and therefore to provide retirement benefits to the members of the scheme. It also allows the members of the trust to act as trustees and to be fully involved in the management of funds and investments. It is designed to be a flexible pension for a small number of members, applying that flexibility to the retirement options of its members, the way contributions and transfers are handled and most particularly, the range of investment opportunities the pension may invest in, including commercial property and even investments in the company of the sponsoring employers.

Who is Allowed to Set Up a Small Self-Administered Scheme?

Because SSAS Schemes are occupational pension schemes, they can be established by any UK registered company, (although they must not be established by a member of the scheme.) The company establishing the scheme will therefore almost certainly be a UK limited company or a limited liability partnership, so that there is a separate legal identity from the partners or directors.

How Is a SSAS Pension Scheme Structured?

The best way to picture the structure is to look at all the people involved, from the top down. These include the sponsoring employers, the trustees, the scheme administrator, scheme practitioner and the members:

Sponsoring Employers

Sponsoring employers refers to the original company employers who set the scheme up (and occasionally to employers who have subsequently been added by deed.) They are the ones who will make contributions into the SSAS on behalf of their employees. Equally, one of the unique features of an SSAS is that the scheme is allowed (by revenue customs -authorised and regulated ) to invest back into these same sponsoring employers so long as they meet a number of qualifying criteria.)

Trustees

Trustees are made up of the original trustees who were appointed during set up or (in a similar fashion to the sponsoring employers) who have been appointed subsequently by deed. They are often members of the scheme, though they don’t have to be. They can be individuals or a body corporate and they must have the capacity to act as a trustee, the definition of which includes being able to contract and not being prevented from doing so by either the Pensions Regulator or the courts. Most will have an independent professional trustee although the legal requirement for a trustee authorised by HMRC (referred to as a Pensioneer Trustee) was removed back in 2006. The way it is structured, means that even though they are not beneficiaries or members, trustees are actually legal owners of the trust and any assets it has. These trustees are tasked with ensuring that the scheme is being managed according to current pension regulation and must act responsibly, prudently, impartially and in the interest of the beneficiaries and members.

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Members

Members will also be beneficiaries of the SSAS and membership can be offered to any company directors, family members, current employees, former employees or future employees at the discretion of the Employer and Trustees. However, not all beneficiaries of the scheme will be offered membership. Membership is divided into 4 categories:

Active Members

these are members who currently have benefits accruing in the pension.

Pensioner Members

these are members who are not active members but who are entitled to receive their benefits from the scheme.

Deferred Members

Deferred members are members who have rights under the scheme but who are neither pensioner members nor active members.

Pension Credit Members

Pension credit members are members who have rights in a pension scheme that are indirectly or directly attributable to pension credits.

Scheme Administrators

A scheme administrator is an individual or body that has been appointed by the trustees of the scheme to perform the administration and reporting requirements according to the law and the wishes of the trustees. They must meet the ‘fit and proper person’ test as set out by HMRC and be registered with HMRC.

Scheme Practitioners

Scheme practitioners will perform tasks and act for the scheme administrator in the same way as an accountant might act for someone’s business. Pension scheme practitioners can file on behalf of the administrator, however it is important to note that it is still the Administrator who has responsibility for anything that has been filed and for the tax charges that are levied on the scheme by HMRC.

What Are the Benefits of a SSAS Pension?

When it comes to the benefits of an SSAS the first thing to bear in mind is that as with all pensions, it allows you to get tax free reliefs (Income Tax, Capital Gains, ) on your qualifying contributions, whether you made them, or whether they were made on your behalf. You are allowed to consolidate all of your previous pension schemes by transferring them into the SSAS and should you wish, can also transfer out any benefits you accrue under the SSAS to another pension scheme at a later date. As with all pensions, funds held within the SSAS are free of tax and the sponsoring employer can pay all the administration expenses, meaning you have no fees or charges eating into your pension. When you retire you are allowed to take a lump sum out of the SSAS pension (normally up to 25% of your share of the fund) and depending on your employer you may be allowed to retire from the age of 55 onwards. You can take a pension income directly from the SSAS or use your funds to purchase an annuity separately and you can pass on your funds to beneficiaries of your choosing without them having to pay inheritance tax. Members can be fully involved in the management of funds and investments and the range of investments open to the SSAS is extremely broad. These include property and even investments in the company of the sponsoring employers. It is also able to loan money back to the company of the sponsoring employers. Another bonus is the tax free lump sum.

Risks Of Small Self-Administered Schemes

As with all money purchase pension schemes that rely on investments, the retirement benefits of an SSAS that you get when you retire will depend on the amount you have contributed into the SSAS combined with the performance of the investments at the heart of the SSAS pension. If these have gone down, then your retirement funds will not be as large as you might have hoped. Other factors that might affect your pension include the timing of your retirement – if you plan on purchasing an annuity when you retire then you will again be at the mercy of market fluctuations and annuity rates which could see you receiving less income than you hoped. One thing to point out is it’s not regulated by the financial conduct authority but is registered with HM Revenue and Customs (HMRC)

Members

Members will also be beneficiaries of the SSAS and membership can be offered to any company directors, family members, current employees, former employees or future employees at the discretion of the Employer and Trustees. However, not all beneficiaries of the scheme will be offered membership. Membership is divided into 4 categories:

Active Members

these are members who currently have benefits accruing in the pension.

Pensioner Members

these are members who are not active members but who are entitled to receive their benefits from the scheme.

Deferred Members

Deferred members are members who have rights under the scheme but who are neither pensioner members nor active members.

Pension Credit Members

Pension credit members are members who have rights in a pension scheme that are indirectly or directly attributable to pension credits.

Scheme Administrators

A scheme administrator is an individual or body that has been appointed by the trustees of the scheme to perform the administration and reporting requirements according to the law and the wishes of the trustees. They must meet the ‘fit and proper person’ test as set out by HMRC and be registered with HMRC.

Scheme Practitioners

Scheme practitioners will perform tasks and act for the scheme administrator in the same way as an accountant might act for someone’s business. Pension scheme practitioners can file on behalf of the administrator, however it is important to note that it is still the Administrator who has responsibility for anything that has been filed and for the tax charges that are levied on the scheme by HMRC.

What Are the Benefits of a SSAS Pension?

When it comes to the benefits of an SSAS the first thing to bear in mind is that as with all pensions, it allows you to get tax free reliefs (Income Tax, Capital Gains, ) on your qualifying contributions, whether you made them, or whether they were made on your behalf. You are allowed to consolidate all of your previous pension schemes by transferring them into the SSAS and should you wish, can also transfer out any benefits you accrue under the SSAS to another pension scheme at a later date. As with all pensions, funds held within the SSAS are free of tax and the sponsoring employer can pay all the administration expenses, meaning you have no fees or charges eating into your pension. When you retire you are allowed to take a lump sum out of the SSAS pension (normally up to 25% of your share of the fund) and depending on your employer you may be allowed to retire from the age of 55 onwards. You can take a pension income directly from the SSAS or use your funds to purchase an annuity separately and you can pass on your funds to beneficiaries of your choosing without them having to pay inheritance tax. Members can be fully involved in the management of funds and investments and the range of investments open to the SSAS is extremely broad. These include property and even investments in the company of the sponsoring employers. It is also able to loan money back to the company of the sponsoring employers. Another bonus is the tax free lump sum.

Risks Of Small Self-Administered Schemes

As with all money purchase pension schemes that rely on investments, the retirement benefits of an SSAS that you get when you retire will depend on the amount you have contributed into the SSAS combined with the performance of the investments at the heart of the SSAS pension. If these have gone down, then your retirement funds will not be as large as you might have hoped. Other factors that might affect your pension include the timing of your retirement – if you plan on purchasing an annuity when you retire then you will again be at the mercy of market fluctuations and annuity rates which could see you receiving less income than you hoped. One thing to point out is it’s not regulated by the financial conduct authority but is registered with HM Revenue and Customs (HMRC)

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