Small Self Administered Scheme SSAS

Director SSAS.

A Small Self Administered Scheme (SSAS) is an executive pension arrangement with all of the same basic requirements as an Executive Pension Plan.  We suggest you read the executive pension plan page first to get an idea of the basic rules before looking at this section.  Executive Pensions.

Pension funds generally can invest in a wide range of investments such as stocks and shares, property, cash, bonds and gilts.  In practice, most people invest in the funds of pension companies that invest in these.

You can however, choose to select your own stocks and shares or property for your pension fund to buy.  These types of pension funds are known as Self Invested Personal Pensions (SIPP) or executive style company pensions called Small Self Administered Schemes (SSAS).

A SSAS can invest in a wide range of investments other than just insurance policies, such as stocks and shares, property and copyrights.  They are also permitted to make loans to the sponsoring employer as well as borrow money itself from banks and building societies e.g.  to fund a property purchase.

For this additional flexibility of choosing investments yourself, there may be additional charges made by the pension scheme provider.

New Pension Investment Rules From April 2006

New pension rules started in April 2006 that are detailed below.  Company style executive pension schemes such as SSAS have until 2009 to amend their current rules and adopt the new rules. 

Permitted Investments - New Rules

Unlike the old pension rules (before April 2006), HM Revenue and Customs have removed many of the restrictions on the types of things a pension fund can invest in.  The following list is not complete but we hope it gives you an idea of the things that you could control in your pension fund:

• Stocks and shares of companies including investment trust companies and oeics listed on Inland Revenue recognised stock exchanges
• Fixed interest securities, warrants, Permanent Interest Bearing Shares, debenture stocks and loan stocks and convertible securities
• Futures and options
• Approved unit trusts and unapproved ones, if tax exempt
• United States Mutual Funds (if recognised by the UK Financial Services Authority)
• Insurance funds and unit linked funds of a UK or European Union Life Company
• Traded Endowment Policies
• Deposit accounts with a recognised financial institution
• Worldwide commercial property and land including farm land and forestry, freehold or leasehold
• Residential Property or land only if an element of residential property is within a commercial purchase e.g.  an on site flat for a caretaker, this may be allowed or if only a minor share as part of a multi-owner group e.g.  20 seperate pension funds are buying equal shares as a commercial transaction

Restricted and Prohibited Investments - New Rules

Instead of focusing on having a prohibited investments lists, as with the old rules, HM Revenue and Customs has set down some rules regarding alternative investments that are closely monitored and with wider rules but much tighter rules in certain areas to avoid 'naïve' pension investors being caught out or indeed investors abusing the new flexibility.

Restricted Investments - these can be done but there are special rules that have to be complied with

• Lending money to your Company
• Buying shares in your Company
• Investments that benefit pension fund members at below commercial rates

Prohibited Investments - these are specifically excluded

• Residential property - prohibited except as above
• Works of Art - prohibited
• Fine wines - prohibited
• Stamps - prohibited
• Antiques - prohibited

Pension Borrowing Rules

The trustees of a SSAS used to have wider powers to borrow money based upon annual premiums and fund values.  This is now restricted in that the pension fund is allowed to borrow on a mortgage a figure equal to 50% of the pension fund value.  In plain english, a 50% deposit by the fund is required e.g a pension fund worth £100,000 can borrow £50,000.  

Who can have a SSAS?

Under Pension Simplication rules you are now eligible to contribute to such a plan if you are an employee of  a UK employer who sponsors the scheme and a UK Relevant Individual and receive tax relief on contributions made.  Even if you do not live in the UK you may still be able to pay into a UK pension plan.  

What can I pay into a SSAS?

You are allowed to contribute premiums to as many pension plans as you want up to the Annual Allowance.  The Annual Allowance started in 2006/07 at £200,000 pa.  This means you or your employer may be able to pay huge sums into your pension without any complex calculations.   Your employer must pay into this type of scheme as it is a company pension scheme.

How much should I save in my SSAS?

This is a personal choice based on what you can afford.  We have produced a number of calculators to help you decide and you should try them in the Interactive Zone to see if they help you.  

What happens to my money that I have paid in?

Your pension money is invested normally in collective funds with other pension savers or in direct investment holding as suggested above.  You technically buy shares in your fund known as 'units' in the pension fund.  Pension funds invest in a wide range of areas such as cash, property, fixed interest stock, bonds, shares, overseas shares and much more.  

How does my SSAS grow?

If the value of an asset owned by the pension fund goes up in value e.g.  a Shopping centre owned by a pension property fund, then the 'unit price' value of your 'shares' or 'units' in that fund goes up.  

When can I retire from a SSAS?

You can retire from this type of scheme after the age of 50 until April 2010 and age 55 after April 2010.  

What happens to my SSAS at retirement?

At retirement you are allowed to receive a tax free lump sum of 25% of the fund value and the balance can then be used to purchase a retirement income.  Think of it like investing money in a bank account, you cannot have the money back and you receive income on the money you invested.  

There are three types of income style at the chosen retirement date; some are more risky than others: Secured Income (an annuity), Unsecured Income and for some over 75's Alternatively Secured Income.  

What is the maximum pension I can receive when I retire?

There is no maximum pension you can receive.  Your pension income depends upon the size of the fund that you have built up and then what income/interest rate that fund can then pay out.  If your fund grows too a huge fund there will be tax penalties if it is above the Lifetime Allowance .  

The Lifetime Allowance started in 2006/07 at £1.5m and increases most years so it should not affect the majority of us.  If you have selected Unsecured Income you will have a choice of income levels from £0 up to 120% of the Government's Standard Annuity Level for your age and for over 75's Alternatively Secured Income you will have a choice of income levels from £0 up to 70% of the Government Standard Annuity Secured Income.  

What happens if I die?

If you die before you have retired ie not taken income or tax free cash from your pension your heirs will normally receive the whole pension fund as a lump sum.  If you die and you are already receiving benefits, cash or pension or both, if it is Secured Income (annuity) your heirs may or may not be able to receive a balance of the fund paid depending upon the type of annuity you invested in.  If you die and you are receiving benefits under Unsecured Income or Alternatively Secured Income you heirs may receive some or all or all of the fund subject to tax penalties and/or inheritance tax.  

Can I have Life Insurance Cover?

Most pension plan providers can offer you Pension Plan life cover.  This means that the premiums you pay for life insurance receive tax relief on the premiums.  If you die and your heirs receive Pension Life Cover pay outs plus the value of the pension fund and it exceeds the Lifetime Allowance there will be a tax charge.  

How can I apply for a SSAS?

Purchasing a SSAS is not a simple process, it requires professional advice as there are certain areas that have to be researched and many contracts have different options and charges for different levels of investment flexibility.  

Therefore, we do not allow people to buy these arrangements direct from this site.  We ask that you contact us to take some professional advice, either over the telephone or via a face to face  meeting.   Contact us now.

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Old SSAS Rules Before April 2006

The Basics of a SSAS 

The maximum number of people that could join a SSAS was 11, in practice many still do this

A company could only have one SSAS arrangement.

A SSAS bank account must be set up at the start of the scheme.

There are special, actuarial, reports that had to be produced at the start and then every 3 years (the SSAS provider will normally do this for you – but there may be a charge)

The HM Revenue and Customs monitor SSAS and expect many changes to be notified within 90 days as well as seeking their permission for certain things such as transferring pension benefits in or away to another scheme.

Permitted Investments - Old Rules

Stocks and Shares quoted on World-wide stockmarkets including:

• Bonds
• Equities and loan stocks
• Financial and commodity futures
• Traded options
• Deposit accounts
• UK authorised unit and investment trusts
• UK unauthorised unit trusts if "tax exempt"
• Insurance company funds
• Copyrights
• Traded endowment policies
• Loans to the sponsoring employer
• Commercial property
• Land for commercial development
• Farmland and forestry land

Prohibited Investments - Old Rules

Generally anything that could provide the member/director with a personal benefit or enjoyment.

• Antiques
• Rare books
• Jewellery
• Oriental rugs
• Fine wines
• Yachts
• Krugerrands
• Works of art
• Rare stamps
• Gem stones
• Furniture
• Vintage cars
• Gold bullion

Pension Loans to Employer - Old Rules

• The pension scheme could make loans to the employer which was ideal from a cash flow management point of view.  There are some basic rules:
• The Inland Revenue need to be notified within 90 days. 
• In the first two years of the scheme, a maximum of 25% of the fund could be loaned, this must exclude any transfers that have been made.
• After two years, the maximum loan was 50% of the fund including transfer values.  Loans could not be made: to members or connected persons, for non-commercial purposes, where businesses were in financial difficulty, or on preferential terms.
• Capital raising - the pension scheme could purchase shares in the sponsoring employer company – subject to a maximum holding of no more than 25% of the fund.

SSAS Borrowing - Old Rules

• The SSAS could borrow money at a commercial rate from organisations such as a bank or building society.  There are some basic rules:
• Commercial Property Only was allowed (it was allowed if there was an element of residential property within the commercial development).
• The maximum that a SSAS could borrow is up to 45% of the fund value (this excludes any pension fund borrowings, loans or funds earmarked for somebody in deferred retirement) plus 3 X the ordinary annual contributions paid into the pension scheme).
• Property could be purchased from third parties including the sponsoring employer company, but not from the directors direct if they have owned it within the last 3 years, residential property is not allowed.
• Permission had to be sought from the Inland Revenue.