Earlier in the year on an adviser forum an IFA asked about the pros and cons of SSAS versus SIPP. Interestingly this was because his clients accountant was proactively suggesting a SSAS be used instead of the two SIPPs that owned a business property.
Following a period after A day when the extinction of the SSAS was much prophesied, the market has seen something of a resurgence and is likely to increase in popularity. There are many similarities in the two types of plan with the same contribution levels applying and the same retirement income options and death benefits.
The textbook answer to the original question would be that the SSAS could loanback monies (up to 50% of the net scheme value) to the sponsoring employer giving a good source of additional funding for the business, although it has to be secured on assets of the business or the directors. Given potentially reducing contribution limits a scheme that lets directors maximise their contributions but with the facility to still access the funds, if they are needed in the business is a powerful argument.
There is no doubt that loanbacks are an attractive feature unavailable in a SIPP and that alone could be a driver for using a SSAS but there are other reasons that may make them attractive.
A SSAS is constituted as a scheme in its own right with its own trust deed and rules its own administrator and the members as trustees, often with an independent trustee included to give a degree of comfort. There is a cost to having the scheme as a separate entity and SSAS will certainly cost more than a low cost, funds only SIPP. Once a SIPP is being used for full self investment, however the balance is more even and two people with full SIPPs can probably have a SSAS for a similar amount and once third and fourth members are added, for example, the spouses of the directors, then the SSAS becomes much more cost effective.
When dealing with multi-member ownership a SSAS can be much easier than using several SIPPs. Costs paid out and rents etc received are all just paid to the scheme – the division between the members is internal and there is no requirement to move monies around multiple accounts. That is not to say however that all SSAS investments have to be pooled, there is no problem with individual members having specific investments say a platform or stockbroker account earmarked for their personal choices. A degree of flexibility is at the heart of a SSAS and the members who are also the trustees can decide on all these matters.
The ability to hold assets across members can be very useful where commercial property is held. As the original members head into retirement they may want to draw their tax free lump sums but not want to sell the property. Younger members may be happy to allocate some of their liquid assets or new contributions to help provide liquidity and keep the property, which might well be their business premises secure.
The constitution of the SSAS may also give an advantage over the SIPP given the high pressured regulatory and business environment affecting SIPP Providers. The FCA has increased the requirements on SIPP providers in terms of both regulation and capital and this has led to increases in charges, greater investment restrictions and market consolidation. Some providers have also become mired in long-running administrative problems. The risk of a chosen SIPP provider becoming an inappropriate choice is increasing but changing provider can be complex and expensive process with a real risk that the replacement provider might itself develop issues or be bought out. A provider change involves adviser time and any property and investments will need reregistering.
The SSAS does not need a separate provider, as long as the members do not let a 3rd party control their scheme by becoming scheme administrator (an odd term that does not mean who does the administration but who HMRC judge to control the scheme) they have full control. If they use a 3rd party Independent trustee or practioner they will take care of all the reporting and technical issues but if needed can be replaced easily.
Following a period after A day when the extinction of the SSAS was much prophesied, the market has seen something of a resurgence and is likely to increase in popularity. There are many similarities in the two types of plan with the same contribution levels applying and the same retirement income options and death benefits.
The textbook answer to the original question would be that the SSAS could loanback monies (up to 50% of the net scheme value) to the sponsoring employer giving a good source of additional funding for the business, although it has to be secured on assets of the business or the directors. Given potentially reducing contribution limits a scheme that lets directors maximise their contributions but with the facility to still access the funds, if they are needed in the business is a powerful argument.
There is no doubt that loanbacks are an attractive feature unavailable in a SIPP and that alone could be a driver for using a SSAS but there are other reasons that may make them attractive.
A SSAS is constituted as a scheme in its own right with its own trust deed and rules its own administrator and the members as trustees, often with an independent trustee included to give a degree of comfort. There is a cost to having the scheme as a separate entity and SSAS will certainly cost more than a low cost, funds only SIPP. Once a SIPP is being used for full self investment, however the balance is more even and two people with full SIPPs can probably have a SSAS for a similar amount and once third and fourth members are added, for example, the spouses of the directors, then the SSAS becomes much more cost effective.
When dealing with multi-member ownership a SSAS can be much easier than using several SIPPs. Costs paid out and rents etc received are all just paid to the scheme – the division between the members is internal and there is no requirement to move monies around multiple accounts. That is not to say however that all SSAS investments have to be pooled, there is no problem with individual members having specific investments say a platform or stockbroker account earmarked for their personal choices. A degree of flexibility is at the heart of a SSAS and the members who are also the trustees can decide on all these matters.
The ability to hold assets across members can be very useful where commercial property is held. As the original members head into retirement they may want to draw their tax free lump sums but not want to sell the property. Younger members may be happy to allocate some of their liquid assets or new contributions to help provide liquidity and keep the property, which might well be their business premises secure.
The constitution of the SSAS may also give an advantage over the SIPP given the high pressured regulatory and business environment affecting SIPP Providers. The FCA has increased the requirements on SIPP providers in terms of both regulation and capital and this has led to increases in charges, greater investment restrictions and market consolidation. Some providers have also become mired in long-running administrative problems. The risk of a chosen SIPP provider becoming an inappropriate choice is increasing but changing provider can be complex and expensive process with a real risk that the replacement provider might itself develop issues or be bought out. A provider change involves adviser time and any property and investments will need reregistering.
The SSAS does not need a separate provider, as long as the members do not let a 3rd party control their scheme by becoming scheme administrator (an odd term that does not mean who does the administration but who HMRC judge to control the scheme) they have full control. If they use a 3rd party Independent trustee or practioner they will take care of all the reporting and technical issues but if needed can be replaced easily.