As you might know from my previous columns on SIPPs Professional, I am, and have been for some time, a huge advocate for Small Self-Administered Schemes (SSAS).
You’re probably used to seeing the age old ‘SIPP vs SSAS’ argument, where the merits and limitations of both structures are compared, despite them having fundamentally different target markets.
I’m not going to rehash the SIPP vs SSAS debate. While it’s important to understand the differences, the reality is that this binary comparison is no longer helpful. Both structures have their place.
Both offer valuable retirement planning opportunities. However, fundamentally they serve different purposes and it’s time we stopped treating them as interchangeable options.
Both offer a good opportunity to save for retirement and benefit from tax relief on contributions. However, with the upcoming changes to inheritance tax (IHT) and pensions, I do wonder if this might encourage SSAS to become a more popular solution for advisers and clients due to the business growth opportunities that it offers over its SIPP counterpart for entrepreneurial clients.
With the upcoming changes in IHT, the possibility for liquidity to be readily required is going to increase. For SSASs, the pooling opportunity and the ability to use liquidity across all member’s funds may well result in less disruption for the overall long term scheme investment strategy.
One of the most powerful and unique features of SSAS is the ability to lend money back to the sponsoring employer, commonly called a ‘loanback’.
Members can loan up to 50% of the scheme’s net assets to the business subject to certain criteria around loan length, repayment and security. This circumnavigates the need for traditional high street borrowing which, for smaller amounts, can be challenging to obtain and can typically be a lengthy process. Another funding option would be diluting ownership, which again can be avoided by using a SSAS.
Then there’s commercial property acquisition. Like SIPPs, SSASs can purchase the business premises and lease it back to the company, generating tax-free rental income for the scheme while securing the business’s operational base.
The ability to marry business strategy and retirement saving is largely unique to a SSAS.
Particularly for multi-member schemes, SSASs provide an effective solution, allowing up to 11 members to pool resources together to increase buying power. Unlike a SIPP, where each member will require their own pension, a SSAS allows more efficient passing down of wealth through generations (via a single trust). This structure supports long-term succession planning and tax-efficient legacy building – a key consideration for family run businesses.
With the Government so desperately looking for pension investment in the UK, SSAS seem a big part of the solution to this. The answer is categorically not mandating pension investment in UK equities. But investment into SMEs, through a SSAS, is a natural fit. It supports business growth, keeps capital within the UK economy (ticking the Government’s boxes), and aligns with the entrepreneurial spirit that drives so many of our clients.
So, let’s stop the SIPP vs SSAS debate. Instead, let’s focus on how pensions can be used to effectively deliver client retirement outcomes, and support growth in the economy. Two goals that a SSAS is extremely well positioned to achieve.
Martin Tilley is chief operations officer at WBR Group