SIPP VS SSAS
Whilst SSAS have existed for many years longer than SIPPs, in recent years SIPPs have undoubtedly become the more common vehicle for clients and advisers looking to take advantage of the greater flexibility and investment possibilities offered by self-invested / self-administered pension arrangements.
There are many similarities between SIPP and SSAS but also some key differences, so it can be challenging to decide which is right for a particular client scenario. In the following information, we compare and contrast the two options, but we encourage you to get in touch to discuss your objectives. Our pension consultants can provide technical guidance to ensure that you understand the differences and enable you to make the right choice.
SIPP or SSAS?
Since 2006 most of the tax rules governing SIPP and SSAS have been aligned. For example the contribution limits, how and when pension benefits can be taken and what happens when a member dies are exactly the same. So what are the differences between a Self-Invested Personal Pension (SIPP) and a Small Self-Administered Scheme (SSAS)?
Key Differences
SIPP:
- Personal Pension Scheme not linked to a company
- SIPP provider usually has a single registered pension scheme to which all SIPP members are adhered.
- Membership not restricted to directors/employees
- SIPP provider acts as the trustee (alongside member)
- Individual investment decisions
- Good investment flexibility and control
- Can’t lend to a company controlled by the member
- Regulated by the Financial Conduct Authority
SSAS:
- Occupational pension scheme established by a limited company
- Each SSAS is individually registered with HMRC
- Membership usually limited to directors and key employees
- All members must be trustees – SSAS “provider” may or may not act as trustee
- Pooled fund – investment decisions made by the trustees must be unanimous
- Full investment flexibility and control
- Can lend money to the sponsoring employer (commonly known as SSAS loan back)
- Regulated by The Pensions Regulator
Investments
As well as the differences in the way that SIPP and SSAS are established and governed, a SSAS offers greater investment flexibility than a SIPP. This is because current legislation allows a SSAS to make investments in the sponsoring employer. Because a SIPP doesn’t have a sponsoring employer (although any employer can contribute to it) this is not an option under a SIPP.
Set out below are the key investment differences between a SIPP and a SSAS:
| SIPP | SSAS |
|---|---|
| Cannot make loans to any members or any person/company connected to the member. Any such loan made by a SIPP would be an unauthorised payment and result in tax charges on the SIPP or SIPP member. | SSAS can lend money to sponsoring or associated employers |
| A SIPP doesn't have a sponsoring employer and can theoretically invest up to 100% of the fund in the shares of any company. If however it’s a company owned or controlled by the member it could result in tax charges on the SIPP or SIPP member. | Can invest up to 5% of the fund value in the shares of the sponsoring company. |
| If the company involved is controlled by the SIPP member or an associated person, investment in that company could result in tax charges on the SIPP or SIPP member. | Can buy shares in more than one sponsoring employer so long as the total market value at the time the shares are bought is less than 20% of the total value of the scheme. |
Investments
As well as the differences in the way that a SIPP and a SSAS are established and governed, a SSAS offers greater investment flexibility than a SIPP. This is because current legislation allows a SSAS to make investments in the sponsoring employer. Because a SIPP doesn’t have a sponsoring employer (although any employer can contribute to it) this is not an option under a SIPP.
Set out below are the key investment differences between a SIPP and a SSAS:
| SIPP | SSAS |
|---|---|
| Cannot make loans to any members or any person/company connected to the member. Any such loan made by a SIPP would be an unauthorised payment and result in tax charges on the SIPP or SIPP member. | SSAS can lend money to sponsoring or associated employers |
| A SIPP doesn't have a sponsoring employer and can theoretically invest up to 100% of the fund in the shares of any company. If however it’s a company owned or controlled by the member it could result in tax charges on the SIPP or SIPP member. | Can invest up to 5% of the fund value in the shares of the sponsoring company. |
| If the company involved is controlled by the SIPP member or an associated person, investment in that company could result in tax charges on the SIPP or SIPP member. | Can buy shares in more than one sponsoring employer so long as the total market value at the time the shares are bought is less than 20% of the total value of the scheme. |
Scheme Governance
Membership of a SSAS usually requires a much higher degree of involvement in the administrative affairs of the scheme than membership of a SIPP does. Whilst SIPP providers will normally deal with all of the tax and regulatory reporting required to maintain a compliant SIPP, governance of a SSAS is usually shared between the member trustees, sponsoring employer and the professional trustee / practitioner.
As well as the general duties and responsibilities of trusteeship a key role is that of Scheme Administrator – that is the person or entity that HMRC hold responsible for administering the SIPP or SSAS in line with all applicable pension and tax legislation. For a SIPP that will be the SIPP provider but for a SSAS the member trustees or sponsoring employer have the option to take on that role themselves. If taking that option the nominated Scheme Administrator may wish to engage a professional trustee or practitioner to provide technical guidance and assistance as HMRC do expect the Scheme Administrator to have a good understanding of pensions scheme legislation and regulation.
The main duties of a trustee/scheme administrator include:
- Registering the pension scheme with HMRC.
- Registering with The Pensions Regulator and providing a regular scheme return (unless it’s a single person scheme).
- Making annual returns of information to HMRC.
- Reporting various specified events relating to the scheme to HMRC.
- Providing required statutory information to scheme members regarding their scheme value, pension benefit entitlements and lifetime allowance.
- Paying any tax charges where applicable.
Changing your SIPP/SSAS provider
Conclusion
It’s clear that a SSAS has a number of additional features and advantages over a SIPP but does carry some additional administrative duties for the members.
Whether a SIPP or SSAS will be the most appropriate arrangement for an individual or group of individuals will depend on whether there is a company that could act as the sponsoring employer, the purpose for which they wish to establish the pension arrangement and how much involvement in the running of the scheme they want.
We can’t advise which is best – our role is to assist financial advisers and clients to make the correct decision by sharing our experience and technical expertise in this highly specialised and complex area of pension planning.
For more information on SIPP and SSAS and the trustee/administration services that Westerby the Pension Specialist can provide contact one of our new business consultants today.
Note
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.
The information provided is not to be considered financial advice, Westerby The Pension Specialist is not authorised to give financial advice and we strongly recommend you seek Independent Financial advice for your financial planning needs.
