06 Oct 2023
Small self-administered pension schemes offer a number of valuable features for business owners seeking to optimise their retirement strategy, including tax efficiencies and unique investment opportunities. Lumin Wealth’s Managing Director Martin Cotter explains more.
The recent decision to scrap the lifetime allowance, the cap on the maximum amount you could save into pensions without facing a tax charge, may encourage business owners to further optimise their retirement assets.
A small self-administered pension scheme (SSAS) can be a tax-efficient way for family businesses to build up their retirement nest egg.
What is a SSAS?
A small self-administered scheme is a multi-member occupational pension scheme for limited companies. It is designed for owner-managed and/or family businesses, and can have up to 11 members. Each scheme must be set up as a separate trust, which provides greater investment flexibility, and can reduce the administrative burden of multiple schemes. All members of a SSAS are trustees, and therefore involved in all investment and scheme decisions.
What can a SSAS invest in?
Members’ individual ‘pots’ are typically pooled into a single fund, providing an opportunity to invest in assets collectively. This may allow for larger assets, such as commercial property, to be purchased. A SSAS can also invest in all of the usual investments that a pension scheme can.
Trustees can invest directly in private equity, and can also make a loan back into their own business, which can be a very attractive benefit.
Lifetime allowance change provides SSAS boost
The removal of the lifetime allowance penalty tax charge, together with the increase in corporation tax,
may tempt more small business owners to build up an existing SSAS, or set up a new scheme.
There is now no upper limit on the size an individual’s pension can grow to without incurring a tax liability, so larger investments – such as a commercial property purchase – may be increasingly attractive when viewed within this context.
The 50% increase to the pension annual allowance (from £40,000 to £60,000) may also provide an incentive to put more towards a SSAS, especially when this is combined with ‘carry forward’ of unused allowances.
There is now no upper limit on the size an individual’s pension can grow to without incurring a tax liability, so
larger investments – such as a commercial property purchase – may be increasingly attractive when viewed within this context. The 50% increase to the pension annual allowance (from £40,000 to £60,000) may also provide an incentive to put more towards a SSAS, especially when this is combined with ‘carry forward’ of unused allowances.
Other tax benefits
AAs is the case with standard pension schemes, contributions to a SSAS benefit from tax relief on contributions. Scheme members can also benefit from employer ontributions, and corporation tax relief on contributions to the pension from your business. Contributions from an employer also lead to National Insurance savings.
Loan advantages
The SSAS can also make a loan to a family/connected company, which is not possible with other pension plans. The result of such a loan would be the return of the capital over a five-year period and the interest payable is considered the investment return, rather than being paid to a third-party bank or other party.
This retains the value fully within the pension. This boosts the member’s pension value, but the increase is not considered part of an individual’s annual allowance for pension contributions.
SSAS schemes are a complicated area of retirement planning, and we recommend that you take financial or tax advice regarding your specific circumstances before taking any action. Call 01727 893 333 to find out more, or visit luminwealth.co.uk .
