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Understanding SSAS pensions

14 Dec 2020

ssas pension

Small self-administered pension scheme – known as a SSAS – are usually used to provide retirement benefits for businesses with a small number of key staff. In this blog the Generation Wealth Management experts will explain what an SSAS is and when they are most suitable.

What is a SSAS?

A SSAS is a type of defined contribution workplace pension that an employer can self-manage. Only one SSAS is permitted per company and membership is capped at 11 individuals.  A SSAS scheme can be more cost-effective than the setting up of multiple schemes for employees.

The benefits of SSAS?

One of the most attractive qualities of a SSAS is that it can offer the employer increased flexibility about where the scheme’s assets can be invested. This form of pension scheme allows investments into assets that aren’t commonly available. As an example, a SSAS is able to purchase the company’s trading premises (any suitable commercial property) and lease it back to the company. It may also – subject to certain terms and conditions – lend money to the company and purchase the company’s shares.

A SSAS can also borrow money for instance, the SSAS may raise a mortgage to assist with the purchase of the company’s premises and the mortgage repayments may then be covered, in all or in part, by the rental income that the company pays the SSAS.

All of the assets are held in the name of the Trustees; a SSAS fund doesn’t have individual pots for each member, but rather each member is deemed to hold a proportion of the scheme’s assets as a whole.

When are SSAS most suitable?

This type of pension is most often utilised by small or family run businesses. The scheme is open to both employees and their family members, meaning it can be offered to individuals who don’t work for the company directly.

The tax benefit of SSAS

Pension contributions to a SSAS are eligible for tax relief. Individuals get relief at their nominal rate, therefore basic rate tax payers get basic 20% rate relief, higher rate tax payers  get 40%, and finally additional rate payers get 45%. It is worth noting that only basic rate tax relief is applied to contributions in pension funds the remainder is claimed back via self assessment.

Contributions paid into the scheme by the employer also qualify for tax relief which can help reduce the company’s total tax liability.

When can you draw a SSAS

Members of SSAS can start drawing benefits from the age of 55. There many options to drawing your money, including, the option to take the first 25% as a tax-free lump sum or to receive 25% of each withdrawal tax-free, however any funds drawn in excess of the tax free lump sum allowance will be subject to personal tax.

The amount of benefits will depend on contributions and the performance of the investments. Members can also choose to draw their pension as an income either by purchasing an annuity, or via income drawdown. The information is this blog is based upon current pension and tax legislation and can change in the future.

If you would like to learn more or to speak to a member of our team get in touch today.

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