What is a SIPP?
A SIPP (a Self Invested Personal Pension scheme) is typically a pension product that self-investors will use on a provider’s platform, in order to self-manage funds. A SIPP will normally allow you to invest in a wider range of assets than a personal or occupational pension will. This also includes commercial property.
Historically SIPPs were more expensive to run, because they had more whistles and bells. In recent years due to advances in software and technology they have been made widely available to retail investors. However, the trade off with this streamlined product can be that some of the SIPPs functionality has been watered down.
Benefits of using a SIPP
- A potentially a wider range of investments, which can be appealing to enthusiastic self-investors.
- As with any other pension, the Member may also take a maximum Tax Free Cash Lump Sum of 25% of the fund value. These days, most SIPPs should facilitate Flexi-access drawdown, but, it is important to ask the provider before opening up & contributing to a scheme.
- In addition to quoted equities, gilts, collective investments (OEICs, Unit Trusts, Investment Trusts, etc) and cash deposits, authorized investments include Land and Commercial Property, or even single stocks.
- A SIPP can be self-serviced or serviced by a regulated financial advisor.
Disadvantages of using a SIPP
- Self investment can be risky.
- Although this product can be self-administered, it is likely that advice will be required. Especially if incorporating commercial property into the scheme.
- Streamlined SIPPs may not have the intended functionality, it is important to ask the right questions, before going down the route of opening up a SIPP.
What is a SSAS?
Find out more about directors pensions
A SSAS is established with a Trust Deed and Rules where the Directors select the Members, who are usually also the Trustees. You are likely to need Professional Trustee service to help you set up and run the scheme.
The Trust Documentation and the Rules of the Scheme must be in accordance with the requirements of HMRC which registers each Scheme and grants Tax Exempt status.
The Sponsoring Company makes contributions on behalf of the Directors and Members. Employer pension contributions are treated as a trading expense so attract full Corporation Tax Relief.
This means the Sponsoring Company may make contributions when profits and cash flow allow. The contribution should not exceed the Maximum Contribution Annual Allowance in order obtain Tax Relief.
Benefits of the SSAS
Perhaps the greatest benefit to SSAS members is the breadth of investments allowable, and the overall flexibility of these schemes. This can help enhance the retirement benefits for company directors and scheme members.
- In addition to quoted equities, gilts, collective investments (OEICs, Unit Trusts, Investment Trusts etc) and cash deposits, authorized investments also include Land and Commercial Property. These can be leased back to the sponsoring company.
- SSASs can be used to facilitate Management Buy Outs or MBOs.
- The Scheme Trustees may borrow up to 50% of the net asset value of the Scheme.
- The Trustees may also advance a secured loan at a commercial rate of interest to the Sponsoring Employer.
- Most assets and investments within the scheme have no tax liability. For example bank interest and rental income are exempt from tax; also commercial property within the scheme is exempt from Capital Gains Tax on the ultimate sale. However you cannot reclaim tax credits from dividend income.
- From age 55, the Member may commence taking a pension relevant to the value of the scheme investments and assets. The Member may also take a maximum Tax Free Cash Lump Sum of 25% of the fund value.
Disadvantages of SSAS:
- Normally limited to 11 members;
- Establishment and running costs can be higher;
- Investing in property can concentrate risk, and create conflicts if members wish to retire or transfer benefits to another scheme;
- At least one member, more commonly all members, will be trustees and have legal responsibilities for liabilities and running of the pension.
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The most important advice I give to my clients is to plan carefully and do not leave things to chance. My job is to help grow and protect your assets by providing the knowhow you need to make informed decisions about your future. I then help you implement the strategy into reality. I will work with you over the long term, helping you to build a successful and robust financial situation.