Adviser > Technical Central > Pre simplification > Occupational > Small Self-Administered Schemes (SSAS)
Small Self-Administered Schemes (SSAS)
The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.
What is a SSAS?
Pension schemes are either insured, i.e. the scheme's assets are invested only in insurance policies, or self-administered where some or all of the assets are invested outside insurance policies e.g. stocks and shares.
A SSAS is a self-administered pension scheme where the number of members is less than twelve and:
- at least one of the members is related to another member or to a Trustee of the scheme or to a Partner (if the employer is a Partnership)
- if the employer is a company, where a member or a person connected with the member has been a Controlling Director of the company at any time during the last 10 years
- not all of the assets or income are invested in insurance policies.
As far as benefit and contribution restrictions are concerned, a SSAS is no different from any other approved occupational pension scheme. The same tax relief applies i.e. employer contributions are treated as a trading expense for tax purposes and employee contributions are treated as a deductible expense for income tax purposes.
A non-earmarked contract
A SSAS is not allowed to earmark particular investments for particular members. Her Majesty's Revenue and Customs (HMRC) does not object to certain investments being notionally linked to certain members as long as the Trust provisions ensure that the member’s entitlement to benefits is against the funds of the Trust as a whole. A SSAS must be established as a common Trust fund.
Why set up a SSAS?
The main attraction of a SSAS compared with an insured scheme is the investment opportunities that are available to the Trustees. In particular, they may use some of the scheme's assets in the direct purchase of company property which then becomes an asset of the scheme or in making a loan to the company for business purposes in which case the outstanding loan is an asset of the scheme. There are many advantages in a SSAS owning a property e.g. no Capital Gains Tax liability when the property is sold and no inheritance tax liability. Because of the tax relief available on scheme contributions and the tax-free growth (other than dividend income) of scheme investments this can be a very tax efficient way of retaining profits in the company and reducing the need for additional working capital.
Another major attraction of a SSAS is that the need to purchase an annuity when a member retires can be deferred until the member is 75. This gives some flexibility to the Trustees in:
- providing more time for the realisation of the scheme assets required to provide funds for the purchase of the annuity
- choosing when to realise the assets to buy an annuity - purchase of the annuity can be deferred if annuity rates are not particularly favourable due to low interest rates, or if the market value of assets is depressed due to current economic conditions
- the cost of an annuity decreases as age increases so the longer the Trustees wait, the cheaper the annuity may be.
The member's annuity would be paid directly from the funds held in the scheme until such time as the annuity is purchased. The Trustees are, however, obliged to keep the purchase of an annuity under regular review, taking into account all material factors such as interest rates and inflation, and must do so at least once a year.
Contributions
The following must be taken into account when setting the level of contributions to the scheme:
- the level of contributions must not exceed the maximum permitted by HMRC, based on the member's pensionable earnings, prospective total service with the company and taking into account retained benefits from previous schemes and the benefits and continuing contributions under any concurrent schemes
- special single contributions can be paid in respect of past service but cannot be used to pre-fund future benefits
- members may normally contribute up to 15% of their own earnings to the scheme (subject to the overall maximum contribution limits) less any member or additional voluntary contributions to existing schemes.
Contributions in addition to the above can be paid in respect of death benefits.
Remuneration for pensionable purposes is restricted to the earnings cap for all members joining schemes established on or after 14 March 1989, unless such members are entitled to 'continued rights' arising from previous pension arrangements with the same employer. The 'earnings cap' for the 2005/2006 tax year is £105,600.
Investing contributions
The investment strategy must be appropriate to the purpose of the scheme - to provide retirement benefits. Assets must be available in readily marketable investments in order to meet benefit payments when they fall due. Early retirement, leaving service or the death of a member may also require assets to be realised at short notice.
The following investments are normally acceptable to HMRC:
- stocks or shares quoted on a recognised Stock Exchange
- UK deposits or other UK money market instruments
- unit trusts
- units in a managed fund authorised for the investment of pension funds
- policies issued by an authorised UK insurance company
- commercial property.
Transactions for the purchase, sale or lease of any asset between the scheme Trustees and a scheme member or connected person (e.g. a relative) are not allowed. Transactions between the scheme Trustees and the employer are allowed as long as the transaction takes place at arms length.
Additional acceptable and unacceptable investments
There are many other investments that a SSAS can and cannot invest in. Listed below are some of the common investments requested by the scheme Trustees:
| ACCEPTABLE TRANSACTIONS | UNACCEPTABLE TRANSACTIONS |
|---|---|
| Bonds | Antiques |
| Cash and deposit accounts | Films |
| Commodity and financial futures | Fine wines |
| Company and quoted stocks and shares | Furniture |
| Copyrights | Gem stones |
| Fixed Interest Stock | Gold billion |
| Guilts | Jewellery |
| Land | Kruggerands |
| Traded options | Oriental rugs |
| Open Invested Investment Companies | Rare books |
| Unit Trusts and Investment Trusts | Stamps |
| Pension policies | Vintage cars |
| Plant and machinery for leasing | Works of art |
| Second hand endowment policies | Yachts |
Special requirements
There are some special requirements for the approval of a SSAS. The Trustees must submit regular actuarial valuation reports to HMRC. They must also appoint an independent Pensioneer Trustee and a scheme Actuary. If the Trustees decide to change their Pensioneer Trustee then they must advise HMRC within a specified timescale.
HMRC also requires the scheme Administrator to notify them within 90 days of certain types of investment transactions taking place. This is done using standard forms. Failure to meet any of HMRC's requirements (including failure to provide information or documentation within the specified timescales) may incur financial penalties and will jeopardise a scheme's tax approved status.
Pensioneer Trustee
A Pensioneer Trustee is an individual or a company with pension experience. They must be approved by HMRC to act as a Trustee of a SSAS.
With effect from 29 August 2000 HMRC issued an Update “Enhancing the Role of the Pensioneer Trustee”. This Update confirmed the expanded role of the Pensioneer Trustee. Following the Update it became a regulatory requirement for the Pensioneer Trustee to be a registered owner (along with other Trustees) of all scheme assets and mandatory co-signatory to all scheme bank accounts. These regulations strengthened the role of the Pensioneer Trustee in order to reduce tax avoidance under a SSAS. The new requirements affected both existing and new schemes.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.
Updated 6 July 2005
For professional advisers only
