A SSAS allows a wide range of investments compared to a traditional pension arrangement
A SSAS allows a wide range of investments compared to a traditional pension arrangement including:
- Industrial and office commercial property
- Commercial and agricultural land
- Quoted and unquoted company shares
- Gilts and fixed interest investments
- Collective investments (Unit Trusts, OEICS, SICAVS)
- Investment Trusts
H M Revenue & Customs have always imposed various restrictions on the investments that a pension scheme can make and these have changed over the years. For example, schemes previously could not normally transact with a scheme member but nowadays that is allowed on the basis that the transaction is arms length and on normal commercial terms supported by appropriate evidence to that effect.
Scheme trustees continue to be required to act prudently, conscientiously and in the best interests of the scheme members. Investments should be suitable for the needs of the scheme and professional advice should be obtained where appropriate.
Self Investment – key rules
This is a very popular investment especially when let to the employer business. Rent paid by the employer is an allowable expense for tax purposes and is received free of tax enhancing the value of the SSAS. Land for future development can be an attractive investment. The scheme can raise mortgage finance for such investments and borrowing of up to 50% of the value of the fund is allowable.
The scheme can lend money to the employer provided it is on the following terms:
- It is secured by a first charge on assets. The market value of the assets must be at least equal to the amount owing, including interest.
- The terms of the loan can be up to 5 years with equal annual repayments.
- The value of the loan can be up to 50% of the value of the fund at the date it is taken out.
- The interest rate on the loan must not be less than that specified in H M Revenue & Customs regulations. This is a minimum of bank base rate (calculated as specified in regulations) + 1%.
Loans to members or connected persons are prohibited
Schemes are able to invest in quoted or unquoted shares. The only restriction applies to purchasing shares in the sponsoring employer, which would be limited to less than 5% of the pension fund’s value. If shares are acquired in more than one sponsoring employer, the payments will be treated as authorised provided that in total the shares are not worth more than 20% of the fund’s value. However please note that restrictions imposed by HMRC to prevent indirect investment in Residential and other Taxable Property could have a significant impact on investment in unquoted shares. Specialist advice should be obtained before proceeding and Pole Arnold can guide and advise the trustees accordingly
Other investments such as unit trusts, OEICS (Open Ended Investment Companies), and pension policies continue to be acceptable, as are discretionary and non-discretionary managed portfolios, cash and other securities.
Pension and other benefits
The earliest age for drawing benefits is age 55. Scheme members do not have to retire from employment in order to start drawing their pension benefits. This may allow a gradual “winding down” as retirement approaches, and also some tax efficient planning.
A tax free lump sum will usually be available to the member of up to 25% of their fund.
The scheme may provide the following types of pension:
a scheme pension payable for life by the Trustees from the scheme’s assets or by an insurance company chosen by the Trustees; or
a drawdown pension either paid direct from the member’s fund as income withdrawal or in the form of short term annuities provided by an insurance company.
- With capped drawdown the income must be within minimum and maximum amounts, the minimum being nil and the maximum being calculated by reference to annuity tables produced by the Government Actuaries Department.
- With flexi-access drawdown any level of income can be taken from the fund.
an annuity payable for life by an insurance company.