For those people, especially business owners, who want more control over their pension and how it is invested, the main two options available are a:

• Self-Invested Personal Pension (SIPP)
• Small Self-Administered Scheme (SSAS)

While they may have similar-sounding names, they each have their differences, as well as advantages and disadvantages. With that in mind, we thought we’d look into both in more detail.

The basics

SIPP:

As the name suggests, a SIPP is a personal pension, with a single member.

It is set up by an insurance company or a specialist SIPP provider such as Boolers, who usually act as the trustee.

SSAS:

A SSAS is an occupational pension scheme, which allows multiple members, some of whom may also be trustees.

Every SSAS has a sponsoring employer with members usually directors or key employees of the business.

Each member has a share of the SSAS’s value based on their contributions (including transfers in from other schemes) to the scheme.

Similarities:

• Investments

A SIPP and SSAS can both invest in a wide range of assets including deposit accounts, directly held shares, unit trusts and property.

• Contribution limits

The amount you, or your employer, can contribute to a SIPP or a SSAS are the same. Furthermore, both can receive transfers in from other pensions.

• Property & borrowing

A SIPP and SSAS can each invest in commercial property, which indeed is often the reason they are used. The property is frequently, although not always, leased to a business owned or controlled by the member; or in the case of a SSAS, the sponsoring employer.

The scheme, whether a SIPP or a SSAS can borrow up to 50% of the scheme’s assets to help fund the purchase of the property.

Except in very rare and exceptional circumstances the tax rules make purchasing residential property in a SIPP or a SSAS unwise and impractical.

• Death benefits

The options available on your death are the same with both a SIPP or a SSAS.

Differences:

• Loans

Some business owners find it useful to borrow money from their pension fund, rather than using their bank.

SIPP:

While a SIPP can make loans, these cannot be to the member, or a person / business connected to the member.

SSAS:

Subject to compliance with certain rules, a SSAS can make loans, including to the sponsoring employer.

Up to 50% of the schemes assets can be lent to the sponsoring employer. The loan must be on commercial terms and a first charge over suitable security, usually, although not always, commercial property.

If a loan is made to unconnected parties there is no limit on the percentage of the schemes assets which can be used.

• Shares

Again, some business owners might want to hold some, or all, of the shares in their business in a pension. The key benefit for doing so is to shelter the growth in the value of the shares from tax. There are however significant issues, not least the potential for a concentration of risk in one asset in the pension, as well as access to the value of the shares before the age of 55.

SIPP:

In theory, you can use your SIPP to invest all your pension fund in the shares of your business. However, doing so is extremely high risk, as many businesses ultimately fail and fraught with complications, expense and potential tax charges.

SSAS:

A SSAS is more restricted and can only invest up to 5% of the pension fund value in the shares of the sponsoring employer.

Buying shares in either a SIPP or a SSAS is a complex arrangement, which will usually increase the level of risk being taken by your pension, and consequently should only be considered after taking expert financial advice.

In summary

Both a SIPP and a SSAS offer members greater investment flexibility, there are some key differences:

SSAS:

• Is an occupational scheme, which needs a sponsoring employer and has member-nominated trustees
• Has multiple members
• Can make loans to the sponsoring employer

SIPP:

• Is open to anyone and doesn’t require a sponsoring employer
• The SIPP provider usually acts as trustee and each scheme has a single member, although SIPPs can come together collectively to purchase an asset, for example a commercial property
• Cannot lend money to a connected party, for example the member’s business

This article is intended as an introduction to the differences between a SIPP and a SSAS. Each has its advantages and disadvantages which need to be considered carefully before selecting the right option.

Naturally, we can help you make that decision, recommending the right option for your needs, indeed, we will also consider whether a self-invested pension is needed in the first place.

If you could like to discuss your options, please call our office on 0116 2407070 or by emailing enquiries@boolers.co.uk.