A small self-administered scheme (SSAS) is an occupational pension scheme set up under trust with fewer than 12 members.
Historically, a SSAS required a professional trustee known as a pensioneer trustee. Since ‘A-day’ this requirement has been removed, although the majority of SSASs still employ the services of an independent trustee who is well versed in legislation and HM Revenue & Customs (HMRC) practice.
The choice of independent trustee is important because some will act as scheme administrator and protect the member trustees from falling foul of making unauthorised payments or breaching tax regulations, while some will not offer this additional service and let the responsibility rest on the shoulders of the member trustees.
The majority of schemes are set up for the executives of director-controlled companies and as many such companies are family businesses, the members of the scheme are frequently related. However, since A-day, there has been no necessity for all members of the scheme to be employed by the same company provided the scheme is originally established by a company for the benefit of one of its employees. This means that the directors of a company who are in a SSAS can enrol other family members in the scheme irrespective of their employment status. It is also possible for a partnership to establish a SSAS for one of its employees (perhaps a relative of a partner) and for partners to subsequently join.
To ensure that exemption is obtained from the pension acts and Department of Work and Pensions legislation, all members are trustees and all decisions on investments unanimously agreed. Investments are held in the names of the trustees and are therefore in common ownership with no specific asset allocated to any one member. This makes the ownership of properties, for example, much more straightforward than the joint ownership of a property between three or four self-invested personal pensions (SIPPs), as there is only one registration and lower legal costs. There is also the advantage that if one member should wish to leave, the use of general scheme liquidity or borrowing against the assets of the scheme can facilitate payment. As the assets within the scheme are held in trust they are protected from company and personal creditors.
Costs of a SSAS
The costs of establishing and administering a SSAS are greater than those of an individual SIPP. But if three or more members are involved then the costs of a SSAS are likely to be lower and, as mentioned earlier, property transactions are significantly less expensive in a SSAS than in a group of SIPPs.
All SSASs are separately registered with HMRC and the fact that the members are trustees, working closely with the independent trustee, enables investment decisions to be taken that are appropriate to the membership, rather than the blanket approach to permissible investments offered by a number of SIPP operators. As well as being able to offer the full range of investments that may be held within a SIPP, a SSAS can also lend money either to a sponsoring employer or associated company, provided any such loan is secured on assets of equivalent value and is on fully commercial terms. A property held within the scheme and leased back to the company is a highly tax-efficient approach for a company occupying its premises.
Taking your benefits
When it comes to taking benefits, the SSAS is as flexible as any pension vehicle available in the market. There can be partial or full crystallisation of a member’s fund with a tax-free lump sum payable and pensions can be paid under unsecured pension (USP) before age 75, alternatively secured pension (ASP) after age 75, or indeed by scheme pension – this option is not available under a SIPP.
Therefore, a member’s retirement pension after the age of 75 may be greater than the maximum calculated under ASP rules. This is because the actuarial calculation to determine the amount of pension you can take considers the member’s actual age, rather than using a calculation based on 75 years old, which is the limit under the Government Actuary’s Department’s table for calculating ASP.
The onerous tax charges on death in ASP set out in the 2007 Finance Act do not currently apply in the event of death when receiving a scheme pension. As it is an occupational scheme, the trustees can take out term assurance on the life of a member and significant non-medical underwriting limits are available in the market. This facilitates the payment of substantial death benefits to relatives even if the fund is not substantial.
The all-round flexibility and cost effectiveness of a SSAS, linked to the tax benefits it can bring to a sponsoring employer, make it the pension vehicle of choice for the director-controlled company.