Many company directors and senior managers opt for either a SSAS or a SIPP to provide them with the flexibility that is required from their pension’s schemes. Both of which MN Consultancy’s adviser have had over 20 years’ experience in dealing with.
Small Self-Administered Schemes (SSAS)
These are a defined-contribution (money purchase) company pension scheme which were originally designed for smaller companies to allow greater flexibility for a company wanting to provide pensions to senior-executives.
Small self-administered schemes were once very popular for directors of companies who could pull together their pension investments to purchase the company trading premises as part of their pension arrangement. As it is now possible to do this within a Self-Invested Personal Pension, these plans have become less popular because they are more complicated to set-up and because assets are pooled they are often very complicated to administer at retirement.
Small self-administered schemes are normally limited to 12 members who are often the Directors & Senior Executives of the Company. When members retire the pot must be split to ear-mark benefits to pay for the retiring member’s pension. This is where things can get complicated and hence the reason generally SIPPs are the preferred option for most companies looking at senior executive pensions.
Self-Invested Personal Pensions (SIPPs)
SIPPs are fundamentally the same as a Personal Pension (PPP) but provide greater investment flexibility which can include commercial property investments such as offices, shops and factories. They have identical tax treatment to Personal Pensions, the limits on contributions are the same, the tax relief is the same and they have the same flexibility in retirement.
SIPPs are generally used when you want an element of flexibility over where your money is invested to fit in with your overall investment strategy. Many SIPP providers allow access to virtually the whole market of assets within your SIPP, giving considerable flexibility with how your money is invested. Personal Pensions on the other hand are often limited to a very restricted fund range.
A big attraction of a SIPP is that you can take out a mortgage within the SIPP to help you buy commercial property for investment purposes. This can include your own company’s office, factory or shop. SIPPs can borrow up to 50% of their value allowing you to buy a property worth £150,000 with only £100,000 of pension savings. All rental payments will come into your pension tax-free and you can either keep the property when you retire within the SIPP and utilise the rental income as part of your retirement income or sell the property and use the money to provide you an income.