Pension planning for UK SMEs – SSASs

Small Self-Administered Schemes (SSASs) are a type of employer-sponsored ‘defined contribution’ workplace pension that can give the employer additional investment flexibility. It has become the pensions planning vehicle of choice for UK owner-directors of Small and Medium-sized Enterprises (SMEs).

SSASs are Registered Pension Schemes that have been available since the 1970s. Prior to 1991, investments held in a SSAS were not subject to any restrictions. Fast-forward to today and a SSAS can be established by a UK-registered company as a bespoke occupational pension scheme to provide retirement benefits for a small number of a company’s directors and senior or key staff.

A SSAS should have fewer than 12 members, all of whom will be trustees of the plan. The assets are held in the name of the trustees – there are no ‘individual pots’ for each member, although each member is deemed to hold a proportion of the scheme’s assets. A SSAS is regulated by the Pensions Regulator and is also subject to HMRC rules.

A SSAS is designed to hold ‘employer-related’ pooled investments. Care must be taken as to the types of investment in order to avoid punitive tax consequences. The list of permissible investments includes cash, commercial property – including the employer’s trading premises – shares, corporate or government bonds, and loans.

As an example, a SSAS is able to purchase the company’s trading premises and lease these back to the company provided that the lease is on commercial terms at ‘arm’s length’. A SSAS can also borrow money, subject to HMRC limits, for investment purposes. Mortgages are allowed against commercial property subject to HMRC limits such that the SSAS may raise a mortgage to assist with the purchase of the company’s premises by the scheme.

Loans cannot be made to members but are permitted to unconnected third parties. A SSAS may also, subject to HMRC limits, lend money back to the company and purchase the company’s shares.

Members are subject to Lifetime and Annual Allowance limits and investments grow free from UK Income and Capital Gains Tax. Inheritance Tax is generally not payable in the event of a member’s death before the age of 75. In all cases, obtaining individual tax advice is essential.

Retirement benefits are accessible from the age of 55. A member can generally take advantage of a tax-free lump sum of up to 25%.

A SSAS is not a mass market pension scheme. Rather it should be considered as a corporate planning tool due to the inclusion of ‘employer-related’ investments. They are also highly suitable for succession planning because as well as owner-directors, they are open to their family members, even if they don’t work for the employer.

Used predominantly by controlling directors of family-run UK SMEs, a close relationship with the business’s accountant is key. Sovereign boasts more than 20 years’ experience administering these types of schemes. Whether you are the owner-director of a UK SME or you provide advice to such firms and individuals, please get in touch for a no-obligation discussion as to how Sovereign may assist in this exciting area.

Roger Howman Director Sovereign Pension Services
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