While SIPPs have become the darling of pension providers during recent years, Joe McGrath suggests that the SSAS may be making a comeback.

The widely reported economic difficulties of the past two years have focused the minds of those who have been refining their retirement fund.

In April 2006 – the date commonly known as A-Day – the rules governing pensions changed, supposedly meaning that a much simpler set of regulations would entice more people to save through personal pensions.

What actually happened was that investors were subject to an onslaught from life assurance providers extolling the benefits of the self-investment personal pension (SIPP).

The lesser-known small self-administered scheme – or SSAS as it’s more commonly known – was almost forgotten. A few years on, however, and the credit crunch has triggered a rethink.

Funding route
With banks tightening lending to businesses, many company directors realised that having a SSAS as their preferred pension plan meant that they had access to funds at advantageous rates due to a little-known facility known as the ‘SSAS loan-back’.

Since A-Day, the revised pensions rules mean that a SSAS loan-back enables up to 50 per cent of a fund’s net market value to be loaned for up to five years. Interest rates charged on the loan-back must be at least 1 per cent higher than the average of the leading banks’ base lending rates and the loan must be secured on assets.

Of course, the loan facility is not the only reason that the SSAS still remains profitable in the face of such heavy marketing of the SIPP – cost is a key factor, for example. Three or more members opting for a SSAS are likely to find the plan cheaper than three separate SIPPs.

In addition, there is the added control that a SSAS offers the investors. Robert Graves, head of technical services at Rowanmoor Pensions, explains. ‘A SSAS is predominantly for small businesses and directors of those businesses, whereas SIPPs are generally for individuals. One of the key differences is that SSASs have a lot more control.’

Asset allocation
One of the key advantages of this added control is the way in which assets are held, and this is particularly useful for those investors who want to take out a SSAS with other family members.

For example, if a father and son were both invested in a SSAS together and the father was ready to retire, a SSAS could enable the investors to switch which party can take which asset.

So, if both parties originally had an equal share in a portfolio of property and cash, the trustees could arrange the assets so that, at retirement, the father was able to take a tax-free lump sum in cash while the son takes over the property element.

Richard Millson, partner at Barnett Waddingham, explains that if this were done through a SIPP it would be subject to additional stamp duty and legal fees that are not payable within a SSAS arrangement. This, he says, is one of the many reasons that investors are waking up to the benefits of the SSAS.

He says, ‘In 2007 and 2008, SSAS arrangements were lower, but they recovered in 2009. In a SSAS it is your own scheme run by you as the trustee.

‘A SIPP is cheaper for a one-member scheme, but if you have family members it generally becomes cheaper to run a SSAS, certainly on our fee schedule.’

There are regulatory differences between the SSAS and the SIPP, however. SSASs are not regulated by the FSA, although they are regulated, in part, by the Pensions Regulator.

This means that, while FSA principles dictate that companies that are regulated by the FSA for one product should apply the same principles to other products, illustrations of returns may not be laid out in the same way in all cases.