Since the pensions system was simplified in 2006, the popularity of SIPPs has soared. Jenny Lowe investigates the fate of their corporate sibling
 
It was ‘A-day’, in April 2006, that saw self-invested personal pensions (SIPPs) and small self-administered schemes (SSASs) aligned in terms of contributions that can be paid, benefits that can be  drawn and their borrowing facilities.
 
Since then, the popularity of SIPPs has exploded. But for some, the benefits of the SSAS will certainly be more attractive.
 
An SSAS is effectively an occupational equivalent of a SIPP, in that it is established by an employer for the benefit of employees (usually fewer than 12), with member trustees responsible for the proper running of the scheme, including making investment decisions on the scheme’s assets.
 
While many of the variations between the two set-ups when it comes to contributions and benefit limits have been removed, there are other differences that remain attractive – particularly when it comes to property.
 
According to Jason Butler, chartered financial planner and investment manager at London IFA firm Bloomsbury Financial Planning, when an SSAS purchases a property, it does so as a single purchase transaction and holds it in a common trust for the benefit of all members in proportion to their share of the pension fund.
 
‘This differs from a SIPP, where each member owns a proportion of the property through their own plan,’ he says. ‘This distinction is important where the members are related, benefits will be taken at different times and there is no desire to sell the property to raise cash to provide such benefits.’
 
Under an SSAS, if scheme members decide to reallocate individual investments between them for equal value, it can be done by mutual agreement, eliminating the need to re-register or transfer assets as would happen within a SIPP.
 
Although these schemes are typically used by family-run businesses, it is not just family situation that can benefit from this flexibility. For example, if a director was to resign from the business while still owning part of the business property through their SIPP, it is unlikely that the remaining directors would want the property to continue to be held as an investment by someone who is unconnected to the business. With an SSAS, the expectation would be for a cash transfer payment to be made to an alternative pension plan, which would sever their involvement.
 
A further advantage of an SSAS is that, on retirement, it permits pensions to be paid from the scheme without the need to purchase an annuity, allowing the continued control and flexibility of investments. Prior to 6 April, an SSAS offered one of the last remaining ‘loopholes’ allowing pension assets to be passed down to family members on death without incurring heavy tax charges. Now, though, that loophole has been closed and brought in line with the tax rules applied to alternatively secured pensions (ASPs).
 
An SSAS also has the ability to lend funds to businesses controlled by scheme members, which is very useful at a time when credit remains tight. These schemes are able to hold unquoted shares, which are typically in the sponsoring company. However, under HM Revenue & Customs rules, an SSAS can invest up to 5 per cent of the net value of the fund in the shares of any one connected party, up to a maximum of four connected companies (or 20 per cent in total).
 
Restrictions

There are, of course, restrictions on loans that can be made from an SSAS: it is only possible to borrow up to 50 per cent of the value of the scheme’s assets; the loans must be secured as a first charge on an asset of equal value to the overall loan amount, including any interest; and the loan must be for a fixed term up to a maximum of five years and at a commercial rate of interest.

The benefit is that these loans are tax efficient for the pension scheme as the interest income earned is not subject to tax. For example, the pension fund may purchase a commercial property, which it may then lease back to the company. The pension fund will receive any rent free of tax and has no capital gains liability on any subsequent sale of the property. The company has a secure tenancy and does not need to access funds to source the purchase of the premises.
 
Ian Hammond, managing director of Rowanmoor Pensions, says, ‘SSAS products have claimed their place as the product that underpins the pension portfolio of business owner-managers.’
 
Rowanmoore’s sales figures show an increase of 80 per cent in the first three months of this year,  compared with the same period in 2010, a rise that Hammond says is a direct result of the credit crunch. ‘Not only have we seen a huge rise in the amount of SSAS sales year-on-year, the fact that they continue to be written for commercial property investment and for loan-back purposes shows what an essential investment tool they have become,’ he explains.
 
So while the SIPP appears to be the most popular pension option, the flexibility and tax benefits a SSAS offers to a sponsoring company, it can be argued it is the scheme of choice for director-controlled businesses.