In my last article “Why do so few professional advisers understand SSAS pensions?” I mentioned that I was going to be writing a number of articles trying to help the professional adviser community learn more about SSAS pensions and how they can help their clients.
I’ve received a number of requests to cover specific topics (please keep them coming!) however it is clear that a lot of people want to start with going back to basics and get a solid understanding of the mechanics and application of SSAS pensions.
So, let’s start right at the beginning and understand the acronym SSAS.
Most readers will know that SSAS stands for Small Self-Administered Scheme – but what exactly does that mean?
The First “S” – Small, means it’s a small occupational pension scheme.
Strictly speaking, a small scheme will have fewer than 100 members – but in order for a small scheme to be able to benefit from the reduced administrative burdens and investment restrictions it must have less than twelve members, and all members must be its trustees and all decisions of the trustees must be made unanimously.
Where a scheme meets the exemption criteria in full, it also benefits from the exemption that allows it to make Employer Related Investments.
This permits features such as the ability of the pension scheme to lend to the sponsoring employer, if the trustees believe there are sound and commercial reasons for the SSAS to do so and a strict criterion is met.
I will devote a full article to loan backs in the near future, as they are unique to SSASs and can be the deciding factor when a business owner is choosing which type pension scheme to adopt, and this should always be considered by advisers when discussing the suitability of a product with a business owner client.
To become a member of a SSAS an individual must be a past, present or future Officer or Employee of a Sponsoring Employer.
We’ll go into this in more depth in future articles where we will look at how SSASs can be used as a family trust to protect assets for future generations.
The next part of the acronym stands for “Self-Administered”.
This can sometimes be a bit misleading as usually the actual administration of the scheme is done by a professional administration company.
In this context ‘Self-Administered’ simply means that the members, as Trustees, are actively involved and responsible for the administration of the SSAS, which will include appointing an individual or company to manage that on their behalf and making the investment decisions.
I’ll cover the role of the administration company in due course and will discuss the difference between an administrator and PR actioner, and what to look for when choosing one to work.
As previously mentioned, a SSAS is an occupational Scheme.
This means it is established by a sponsoring employer, to provide benefits for its officers and employees.
Just a quick note on sponsoring employers, it is possible for a SSAS to have a number of associated sponsoring employers – this can be very useful if a business owner has more than one trading limited company.
As well as being a pension scheme, it’s worth remembering that a SSAS is also a stand-alone trust, this means that a whole host of laws cover the assets held within the trust (including Trust, Pensions and Tax legislation).
For business owners, having their retirement fund in a secure environment that can’t be assigned in the event of financial hardship can be a major factor when they are deciding which type of pension scheme suits them best.
However, it would be wrong not to mention the potential downside of a standalone trust at this stage.
Because each scheme starts life as a trust document that is then forwarded to HMRC along with the scheme rules and a detailed application form, SSASs can take considerably longer to register as a pension scheme and become active than other types of schemes.
This should be considered when talking to clients about them. At the time of writing (Summer 2020) HMRC are taking between four to six weeks to register schemes.
So that’s what the acronym SSAS stands for…and what it actually means.
In future articles I’ll start to look in more detail at some of the most common applications of SSASs.
So, if you have a specific application in mind, please drop me a message and I will include it in my next article.
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