SSAS pensions are becoming one of the most sought-after schemes by individuals and businesses in the UK for several reasons. For one, it comes with better control and flexibility. At the same time, there are some tax benefits, alongside opportunities to explore several investments to grow your pension. Weighing the perks of this program against traditional schemes, which are often rigid and less profitable, it’s easy to see why there’s an influx of new pensioners in the SSAS program. If you want to be a part of those choosing it, here’s a brief guide on what you need to get started.
What is the SSAS Pension?
SSAS, which stands for small self-administered pension scheme, is a defined contribution (DC) pension scheme available to small business owners, family-run enterprises, and company directors. It works well for close-knit groups and can accommodate up to 11 members at a time. One of the significant factors contributing to this scheme’s popularity is that it puts investment control in the hands of these individuals, allowing them to pick their funds, the asset classes to explore, and how long it takes before withdrawals. Such an approach makes it easy for businesses to meet their needs and individuals to achieve their retirement goals.
Key Reasons Business Owners Prefer SSAS Over Traditional Schemes
The first of these is what we’ve discussed in the intro session: direct input on where funds are allocated. Investments can range from stocks to commercial properties and loans. Let’s examine some of the others below.
Tax Benefits
Investing in an SSAS pension scheme lowers tax exposure to a large extent. Some of them are the tax-free lump sum on retirement, corporate, and personal tax relief, and others.
SSAS investments usually enjoy tax-free growth, meaning income and capital gains earned from them can be exempt from capital gains tax and income tax. You get zero tax liabilities for every revenue made from your investments. At the same time, contributors can get a tax-free lump sum of 25% of their overall contributions at the end of the pension scheme. This particular benefit is, however, open to individuals withdrawing at the age of 55 and above.
Another notable tax advantage comes when business owners buy commercial properties using SSAS funds. Some of them are the tax-free rental income and capital Gains Tax exemption. All rental income from the scheme is not tax-deductible, so there is an opportunity for more profits in this situation.
The Loanback Feature
There is an opportunity for business owners to loan back their pension savings to their enterprise, and this comes with some exciting interest. The scheme can lend up to 50% of its net assets to the sponsoring company. Typically, this loan is expected to be repaid within 5 years, with a minimum interest rate that’s 1% above the Bank of England rate. This is another rare positive of the SSAS scheme, and a way to boost retirement savings. If you’re considering this alternative, always ensure that a tangible asset backs the loan to secure your funds. This feature is also beneficial to business owners because it helps them grow their business, avoid external borrowing, and also build their pension pot at the same time.
Buying and Leasing of Commercial Property
SSAS can purchase commercial property, which is beneficial not only for its return on investment but also, for instance, even the building your business operates from can be purchased through the scheme. This can be a smart move for several reasons:
- Your business pays rent to the SSAS, which is tax-deductible for the company
- That rent grows tax-free inside the pension
- Any increase in property value is exempt from Capital Gains Tax
- You’re investing in your future while evading rent payments to a third party.
Lower Fees and Better Transparency
Most traditional pension schemes are more rigid and do not have as much transparency. You control the structure, can easily evade expensive fund manager charges, and have clear visibility on the performance over time. Most professionals who offer the service provide a low-cost professional administrative process that helps many enterprises cut costs.
Future-proof Your Business and Retirement
For small business owners who value control and flexibility, the SSAS scheme is a great alternative to consider. Setting it up is easy, and because you only need 11 members, you don’t have to be a large enterprise before starting one. We could go on and on about the pros of this scheme, and there will still be more to discuss. However, it’s essential always to do some personal research, especially when making integral financial life decisions such as these. Endeavour to ask further questions and weigh as many options as possible before making a choice.
