Whether the plan is to retire early or after clocking 70, pensions are a go-to finance tool to prepare for life after opting out of active work or business. Business owners are open to various types of pension plans, including self-invested personal pensions (SIPPs) and automatic enrolment pensions, as well as defined benefit pensions. While these pension plans offer various benefits, many business owners are switching to small self-administered schemes (SSASs) to enjoy added benefits.
What Is an SSAS Pension?
A small self-administered scheme (SSAS) is a pension plan designed for business owners in limited companies, partnerships, and family businesses. Company directors usually establish it to fund their retirement and those of employees selected based on the discretion of the sponsoring employer.
SSAS pensions are usually managed independently by the company directors without relying on pension managers or insurance companies. An SSAS can only take up to 12 members per HMRC’s rules. Each member becomes a trustee and can influence investment considerations for the SSAS fund.
Due to the restrictions on the number of members for an SSAS, they’re mostly adopted for family businesses and startups. Individuals without a direct working relationship with the company but are related to one of the trustees can also be added to the SSAS pension.
Unlike defined benefits plans that guarantee a specific income, the final amount each trustee draws at the end of the pension plan depends on the individual’s contributions and the performance of the investment over time.
5 Reasons Why Savvy Business Owners Are Turning to SSAS Pensions
Here are five reasons why UK business owners are switching pension plans to SSAS:
Investment Flexibility
The HMRC allows SSASs to invest in a diverse range of assets compared to other pension types. Business owners looking to explore beyond stocks and bonds can look into alternative investments like cryptoassets under an SSAS. Private equities are another exclusive asset to SSASs.
Commercial Properties & Loan Back Opportunities
Another advantage SSAS offers business owners is the ability to invest in commercial property. Business owners can use funds from an SSAS to purchase a commercial property and lease it back to the business. They can also take loans from the SSAS fund under specific conditions. The loan-back opportunity offers businesses an avenue to get funding and cash flow at critical times.
Tax Benefits
All investments made through an SSAS are free from capital gains and income tax. As a way to incentivise individuals to save for retirement, the HMRC offers a 25% tax-free lump sum off accrued savings and investments from the pension plan. All contributions are tax-deductible allowing companies to effectively reduce their tax liabilities while building structures for long-lasting wealth.
High Returns on Investments
Most pension funds simplify investment options to low-risk assets like government bonds and treasury bills. However, with an SSAS, entrepreneurs with more risk appetite can decide to opt for investment opportunities with greater profit potential. SSAS administrators can allocate 1 to 10% of the fund to high-risk assets offering greater ROIs. With an SSAS pension plan, business owners can strike a good balance between low and high-reward assets, which is strategic to beating inflation and earning additional returns.
Business Exit & Continuity Privileges
Another benefit to SSAS pensions is the tax-free inheritance beneficiaries get from SSAS trustees. However, an inheritance tax will be imposed starting from 2027. In the meantime, family businesses can capitalise on the tax-free inheritance for succession planning and business continuity.
Business owners looking to exit a business can use an SSAS as an exit strategy. One of the perks associated with SSAS pensions is the ability of the business to buy back shares, which doubles as an exit strategy for business owners.
Getting Started With SSAS Pensions
The sponsoring employer is in charge of establishing an SSAS pension. While SSASs don’t necessarily need to work with insurance companies, the administrator can appoint professionals to set up the fund and manage it. All trustees will retain their right to decide which investment assets to allocate funds to.
Once the trustees have been appointed, contributions can be made to the SSAS fund. The amount and frequency of each member’s contribution should be thoroughly documented electronically, as this determines what they can draw at the end of the plan. Trustees can start drawing benefits from the pension fund from the age of 55 (57 by 2028).
Business owners can set up a traditional SSAS or opt for a relatively new type like a crypt SSAS. Based on HMRC’s rules, UK businesses can only set up one SSAS with a maximum number of 12 members. Previous pension plans can be transferred to the new SSAS. The transfer process usually takes a few days to a few weeks to finalise. Once fully set up and running, business owners must submit an annual report in line with legal processes from the HMRC and Pension Regulator.
How SSAS Pensions Empower Businesses for Long-Term Success
Business owners can invest in more assets, buy commercial property, and take a loan from pension funds with an SSAS. SSAS pensions also stand out from other pension plans by providing more opportunities for businesses to net high-return investments while positioning a business for generational continuity.
