SSAS and its Growth for Occupational Pensions

Surge in SSAS due to Pension Freedom.

Towards the end of last year it was reported that there had been growth in the setting up of Small Self Administered Schemes, with a key reason for this being down to the inheritance tax planning benefits of SSAS following the recent retirement reforms ushered in by Pension Freedom.

In this article we look in a little more detail about this surge in SSASs.

The space for SSAS has opened up

It seems that the new Pension Freedoms along with a SSAS’s ability to pass complex assets, such as commercial property, directly on to family outside the deceased’s estate have opened up new space for Small Self Administered Schemes as an occupational pension scheme.  Indeed, the evidence suggests that growth has come about especially in family run firms, where the directors (who are also likely to be parents and grandparents) want to leave funds to their children (or grandchildren) without having to disturb the investments within the SSAS.  This is now possible because the funds can be passed to anyone (not just dependants) using flexible access drawdown, with no need to break into the fund to pay lump sums.

In addition, whereas tying up profits in pensions wasn’t all that attractive to directors of SMEs, as they could only be accessed in dribs and drabs, the ability to shelter profits from tax in a SSAS with the capability to access them after the age of 55 in emergencies is.

The SSAS loan-back feature is also playing an important role.

It has also been reported that the loan-back feature of a SSAS is also playing a significant role in the growth of new schemes.  This is because the loan interest paid back into a SSAS is considered to be investment income and is therefore exempt from the annual allowance limitations.  And because it sits in a pension scheme the cash accrued rolls up on a gross basis with no income tax to be paid by the Scheme.

Under current legislation, SSAS schemes are able to lend funds to a sponsoring employer provided that the loan equates to less than half of the scheme’s total net funds and the rate of interest is a minimum of 0.5 per cent higher than the base rate.

It is for these reasons that providers have seen SSAS business levels increasing by as much as 20% since the introduction of pension freedoms.

The loan must however be secured on an asset on a first charge basis.

Contact us if you are interested in a SSAS

At Pensions Management Limited we specialise in SSASs, both the setting up of them and the administering of them through the Trustees.  If you are a company director and are considering a SSAS, then contact us or call us on 0121 693 0690 for a free initial chat.

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