SSAS pension: how a small self-administered scheme works

A small self-administered scheme, or SSAS pension, can be set up by senior company executives who want to take full pension investment responsibility for themselves. The tax advantages of using a SSAS to buy and then rent back business premises is often very appealing.

Tim Leonard Published on 24 August 2021.
SSAS pension: how a small self-administered scheme works

For small business owners and company directors who want greater flexibility and control over their own pension schemes, a SSAS pension – where SSAS is short for small self-administered scheme – can be a great choice. As well as allowing senior executives more say over how and where they can invest their pension, SSAS pension rules make it possible to use a SSAS loanback to boost the finances of a business.

Here, we explore how a SSAS pension works, the pros and cons of a small self-administered scheme, and how to set up a SSAS pension for your company.

What is a SSAS pension?

A SSAS pension scheme is usually a defined contribution pension typically set up by senior executives of a smaller business to afford them increased flexibility and control over the direction and management of their pension investments.

As its name suggests, a SSAS pension will normally be ‘self-administered’ by those who arrange it, meaning the scheme can be run independently by its members.

Sometimes a SSAS pension will also be referred to as a family pension, as it is possible for directors to open up the scheme to members of their family, who do not necessarily need to work for the company itself. Usually a SSAS pension scheme will have a maximum of 11 members.

How do SSAS pension schemes work?

A SSAS pension scheme generally works in a similar way to most defined contribution workplace pensions, but there are some important differences.

The main similarity is that the size of the pension fund a SSAS scheme member will have accumulated by retirement will be determined by the contributions that they and/or their employer make, the pension tax relief that these contributions attract, and the performance of the investments that they are invested in.

When it comes to taking benefits, this is possible in the usual way when a member reaches age 55, and at which time they can take a 25% tax-free pension lump sum. An income can be secured with the remaining funds either using a pension annuity or pension drawdown, or a combination of both.

» MORE: Accessing your pension benefits

SSAS pension rules

Where a small self-administered pension scheme will differ to other defined contribution employer schemes is in the specific SSAS pension rules that apply. In particular, a SSAS pension can usually have no more than 11 members, a limit which explains the label of a ‘small’ self-administered scheme.

This limit, as well as the ability to house assets in trust within a SSAS so that benefits can be passed on to surviving family if a scheme member dies, explains why these schemes are often used by smaller family-run firms.

Directors can also use a SSAS to raise funding through the scheme by lending to the company or by buying its shares. If the necessary criteria are met, a small self-administered scheme also offers the potential to borrow funds for the purpose of investing in the business. This is known as a SSAS loanback, and is a unique way to provide a valuable cash injection to a business.

What can a SSAS pension invest in?

A SSAS pension can usually invest in everything that other pensions can invest in, and then more besides. This is because a SSAS tends to be run by trustees – who are usually the members – rather than a pension provider, and it is within their power to allow investment in assets that would not normally be on offer through a traditional pension scheme.

However, it is the option to invest in commercial property that often appeals, and in particular, the ability for members to buy their own business premises, using a SSAS, before leasing the property back to the company. Doing this can provide considerable tax advantages, because:

  • The contributions you make into a SSAS to buy your premises may qualify for tax relief.
  • The rent paid can be treated as a business expense and can therefore lower a tenant’s income and corporation tax liabilities.
  • There is no capital gains tax to pay on the property when it is sold.
  • You will not pay Income tax on rent paid to the SSAS scheme.

Pros and cons of small self-administered schemes

A SSAS pension can provide its members with pension flexibility and various opportunities to benefit their business, but there are also disadvantages to consider.

Advantages of a SSAS

  • It offers members significant control and flexibility over pension investments.
  • You will benefit from tax relief on contributions and potential exemption from tax liability for assets held within the scheme.
  • Members can buy business premises and lease them back, providing various tax advantages.
  • You can borrow funds for your business, bypassing the need to use a bank and potentially allowing the business to borrow at a lower interest rate than a bank loan.
  • You can hold assets in trust to pass benefits on to family on death.

Disadvantages of a SSAS

  • Scheme membership is usually limited to 11 individuals.
  • Members, in their role as trustees, are responsible for meeting legal obligations.

How to set up a SSAS pension

Only a director of a company can set up a SSAS pension, so if you haven’t done so already, you will need to register your company with Companies House. After that, the process involves:

  1. Designating scheme members – The choice of scheme members is generally yours, but the maximum is normally 11, and they will usually be employed by the business or be family of an employee.
  2. Appointing trustees – Trustees legally own the pension and have responsibility for how the SSAS is run.
  3. Appointing scheme administrators – A SSAS must have a scheme administrator who bears responsibility for making sure the scheme adheres to pension law and that the relevant HMRC reporting requirements are met.
  4. Scheme authorisation – Various documents, including a SSAS application form, Trust Deed and bank mandate, must all be completed and signed by a scheme’s sponsoring employer and trustees.
  5. Registering the scheme – Once the scheme administrator receives, verifies and signs off the documents, they can register the scheme with HMRC.
  6. Opening a scheme bank account – You need to hold the contributions that are made into the scheme before, and in between, them being invested.

Does a SSAS need a professional trustee?

Appointing a professional trustee is not a legal requirement for opening or running a SSAS, but their expertise can prove extremely useful if member trustees want to ensure their scheme complies with the relevant pension rules and regulations.

Comparing SSAS vs SIPP

While both a SSAS and a SIPP promise pension flexibility, there are some important differences between the two options.

SASS SIPP
Workplace/occupational pension Personal pension
Available to senior executives and their families, usually a maximum of 11 members Open to anyone
Widest investment flexibility Some restrictions on investments
Able to lend to the sponsoring business Cannot lend
Members are the trustees SIPP provider is the trustee
All of the trustees jointly control the scheme The individual has control over their pension
No individual pension pots; percentage share of overall fund instead. Funds may be notionally earmarked depending on scheme rules. Entire pension fund belongs to the individual

» COMPARE: SIPPs

WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in.

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About the author:

Tim draws on 20 years’ experience at Virgin Money, Moneyfacts and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more

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