Defined contribution: small self-administered pension schemes

A small self-administered pension scheme is a type of defined contribution workplace pension that can give extra investment flexibility.

How small self-administered pension schemes work

Small self-administered pension schemes (SSAS) are generally set up to allow a small number of senior staff in a company to build up a pot of money.

Membership is generally limited to no more than 11 members. These are are often company directors or senior executives. However, they can be open to other workers and even family members.

SSAS are a specialised type of employer sponsored defined contribution pension scheme.

The value of a member’s entitlement from a SSAS when they retire depends on:

  •  the amount of money that’s been paid in on behalf of that member
  •  the length of time that each contribution has been invested
  •  investment growth over this period and the level of charges (if applicable).

When they retire, members will be able to take up to 25% of their pot as a tax-free lump sum. The rest will be used to provide an income.

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Insurance companies and other pension providers offer SSASs.

A SSAS is run by its Trustees, who might often also be the members of the scheme.

SSAS contributions are made by the members and/or the employer.

Contributions by individual members qualify for tax relief. Whereas contributions made by the employer might be deductible against profits, subject to certain conditions.

SSASs will normally accept transfers from other pensions if you want to bring your pensions together.

You can also usually transfer the value of your SSAS to another pension.

The advantages

A major benefit of a SSAS is that it can offer more flexibility on where the money can be invested.

This can include investing in assets that aren't generally available for many other types of scheme. For example, a SSAS is able to buy the company’s trading premises and lease them back to the company.

It might also, subject to certain terms and conditions, lend money back to the company and buy the company’s shares.

A SSAS can also borrow money, subject to terms and conditions, for investment purposes. For example, the SSAS might raise a mortgage to help with the purchase of the company’s premises by the scheme. And the mortgage repayments might then be covered, in all or in part, by the rental income the company pays the SSAS.

All the SSAS assets are held in the name of the Trustees.

The scheme’s rules will say whether each member is allocated an ‘individual pot’ or whether the assets are pooled and each member holds a proportion of the scheme’s assets.

Drawing your benefits

You can normally start drawing benefits from your SSAS from the age of 55.

There are various options for how to take the money when you retire. These include:

  •  a guaranteed income
  •  a flexible income
  •  one or more lump sums.

Normally, up to 25% of the value of your pot can be taken tax-free.

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If you’re thinking about setting up a SSAS, it’s important to get specialist advice as they can be complicated.

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