A Small Self-Administered Scheme (SSAS) gives small business owners and company directors more control and flexibility over their pension fund investments.

It’s particularly suited for family-run businesses because you can include other family members in the scheme, even if they’re not employed by the business. This feature makes it a great choice for family businesses, allowing for a more inclusive approach to pension planning.

Another big plus is that it lets the business borrow against the pension fund to boost the company finances or invest in the business. For example, many companies choose to take out a mortgage that enables the SSAS members to buy the business premises and then lease back to the business, which can bring considerable tax advantages.

We look closer at how a SSAS pension works, its pros and cons for you and your business, and how you can set one up. Before we dive in, it’s important to remember that like any investment, the value of pensions and any income you take from them can go up as well as down, and you may not get back the full amount you invest.

A small self-administered scheme can borrow funds against the scheme for business investment purposes

What is a SSAS pension?

A SSAS is a type of UK pension scheme designed for senior executives, family members, or directors of smaller businesses. It offers more flexibility and control over their pension investments.

Limited to a maximum of 11 members, this type of scheme is similar in many ways to a defined contribution pension – the most common type of personal pension. Each SSAS member contributes to the fund and grows their pension over time. The amount they accumulate depends on how much they’ve contributed and the pension fund’s overall performance.

From age 55 (57 from 2028), members can access their pension or retire, taking 25% as a tax-free lump sum and then using the rest to buy an annuity, take pension drawdown, or a combination of both for their retirement income.

A SSAS pension is ‘self-administered’ by its members, an appointed trustee or a financial manager. They have full responsibility for managing the funds, making investment decisions, and handling the administration. That’s why it’s vital to ensure whoever is appointed has the necessary experience and qualifications to manage the risks involved, and avoid potential financial losses.

How is a SSAS different from a typical personal pension?

Although a SSAS works much like a defined contribution pension, there are some distinct differences and rules.

For example, a SSAS allows assets to be held in trust, making it easier to transfer benefits to surviving family members if a member dies. This feature is especially appealing to smaller, family-run businesses.

Directors can also use a SSAS to generate funding for their company, either by lending from the scheme or buying company shares. Additionally, a small self-administered scheme can borrow funds against the scheme for business investment purposes.

What can a SSAS pension invest in?

A SSAS pension offers a wider range of investment options than standard pension plans. That’s mainly because it’s managed by trustees – usually the scheme’s members – rather than a traditional pension provider. This gives them the freedom to invest in a variety of assets not typically available in conventional pension schemes.

One of the most appealing features of a SSAS pension is the opportunity to invest in commercial property. This may, for example, involve members purchasing their own business premises through the SSAS and then leasing it back to their company. This can provide significant tax benefits, including:

  • Tax Relief on Contributions: Contributions made to the SSAS for the purchase of premises may qualify for tax relief.
  • Business Expense Deductions: The rent paid to the SSAS can be considered a business expense, potentially reducing the tenant company’s income and corporation tax liabilities.
  • No Capital Gains Tax: There is no capital gains tax on the property when sold.
  • Income Tax Exemption on Rent: Rent paid to the SSAS is not subject to income tax.

Lady stood in shop doorway

Pros and cons of small self-administered schemes

Like any investment, there are several advantages and drawbacks to be aware of when considering a SSAS for your business.

Advantages of a SSAS

  • Members have considerable control and flexibility over their pension investments.
  • Tax relief on contributions, and potential tax exemptions for assets within the scheme, offer significant financial benefits.
  • Purchasing business premises and leasing them back brings various tax advantages.
  • Members can borrow funds for their business, often at more favourable rates than traditional bank loans.
  • Assets can be held in trust, ensuring the transfer of benefits to family members in the event of a member’s death.

Disadvantages of a SSAS

  • The number of scheme members is typically capped at 11.
  • Members are responsible for making all investment decisions, both good and bad.
  • Members, acting as trustees, bear the full responsibility for meeting the legal and regulatory requirements.

Setting up a SSAS pension

Setting up a SSAS pension is something only company directors can do, so the first step is to register your business with Companies House (if you’ve not done so already). After that, you’ll need to work through several steps – ideally with the support of a qualified financial planner and tax specialist:

  1. Select the members: You can choose up to 11 people, usually employees and their family members, to join the scheme.
  2. Appoint the trustees: Trustees legally own the pension and are responsible for its management and operation. While not legally required, appointing a professional trustee can be extremely helpful in ensuring compliance with relevant pension rules and regulations.
  3. Choose an administrator: The administrator ensures compliance with pension rules and handles necessary HMRC reporting.
  4. Obtain authorisation: This involves completing and signing various documents, like the SSAS application form, Trust Deed, and bank mandate, by the sponsoring employer and trustees.
  5. Register with HMRC: After everything is checked and approved by your scheme administrator, they’ll register the scheme with HMRC.
  6. Open a bank account: A separate account is needed to hold member contributions before they’re invested.

Seek advice from an independent financial planner

Setting up and managing a SSAS can be challenging, but you don’t have to do it alone. An Amber River financial planner can help you understand if a SSAS is right for your business, assist with the setup process, and provide ongoing support to maximise your pension scheme’s potential.

Get in touch

To speak to us about your financial planning, or to arrange an appointment, call 0800 915 0000, or alternatively use our contact form here.