NEWSLETTER: SSAS or SIPP: What’s the difference?
14 June, 2012
Contributed by MW Pensions. [www.mwpensions.co.uk]
This Newsletter is intended as technical support for financial and other professional advisers. Members of the general public should not rely upon it
SSAS or SIPP?
Now that we are more than 6 years after A Day we thought it was time to look again at the differences between SSASs and SIPPs and give examples of where a SSAS might perhaps be preferable to a SIPP or SIPPs.
Are they different after the changes that came in on 6.4.06?
Yes. Fundamentally a SSAS is a standalone scheme, usually (but not necessarily) with an associated employer. A SIPP is a personal pension
What about trustees?
A SIPP is effectively part of a "Master Trust". With some SIPPs the member is also a trustee and in others they are not a trustee. In the MW SIPP 2 it is the latter, with MW SIPP Trustees Ltd being the sole trustee.
In a SSAS, all the members must be trustees. It is preferable to also have a Professional Trustee, as otherwise HMRC are likely to consider the scheme to be "high risk".
Who can be a member?
Basically anyone in the UK can have a SIPP and there is no minimum age Â– so a SIPP could be set up at birth.
Because, in a SSAS, all members must be trustees, the minimum age for membership in a SSAS is 18 (the lowest age at which someone can be trustee under Trust law).
In a SSAS, even if there is a sponsoring employer, members no longer need to be employees of that company to join the SSAS.
What about the legal aspects?
A SSAS has its own personalised documentation i.e. its own Trust Deed and Rules. A SIPP is just part of an overall Trust Deed that covers all the members of that SIPP.
What about Protected Rights?
Provided their Rules allow it, both SSASs and SIPPs can accept Protected Rights
What about reallocation of benefits between members?
This is not allowed either between SIPPs or between different members of a SSAS
There are no differences in IHT treatment between SSASs and SIPPs.
What about investments?
In most areas there is no difference. But there are two specific areas of difference:
a) a SIPP cannot loan any monies to any connected company, whereas a SSAS can loan up to 50% of its assets to a connected company on normal commercial terms and providing certain defined HMRC requirements are met. Neither a SIPP nor a SSAS can loan money to the member
b) a SSAS is limited to 5% of its assets being invested in unquoted shares of a connected company. A SIPP has no restriction, though care is needed with investment in unquoted shares. Having said that, we no longer allow investments in unquoted companies in the MW SIPP.
What about costs?
We can only talk about our own fees. The annual fees for a SSAS are Â£950 (Â£1200 if trustee services are provided via Specialist Trustees Ltd). For a SIPP (with assets greater than Â£60,000) the annual fees are Â£600. So for 4 people eg. husband, wife, son and daughter, a SSAS is cheaper going forward. However, the set up fee for a new SSAS is considerably more than for a SIPP.
A SSAS must also register with The Pensions Regulator and the Information Commissioner, whereas the SIPP has one registration with each body that covers all the members SIPPs within that Â“master SIPPÂ”. The net effect is that a SSAS will have additional annual fees of Â£33 to cover The Pensions Regulator and Â£35 in respect of the Information Commissioner (Data Protection Acts).
Because a SSAS has its own personalised legal documentation, the ongoing costs of keeping up-to-date with the legal requirements will be higher
When might a SSAS be preferable to a SIPP?
The most common reason in practice is usually where a loan is to be made to a connected party eg the memberÂ’s business. However, it must be remembered that the HMRC requirements must be met and in particular this means:
- the loan must be for a legitimate business reason. It cannot be to prop up an ailing business
- the loan must be secured against something that, if there should be a default, the SSAS could take as an asset with no tax consequences. So, for example, if residential property was used as security, there would be tax penalties. So an MW SSAS does not allow any loan to be secured against anything that would generate a tax charge.
- The interest rate must be Â“commercialÂ”, which means 1% above the average base lending rate of 6 named high street banks, specifically Bank of Scotland, Barclays Bank, HSBC, Lloyds TSB. National Westminster and Royal Bank of Scotland.
- Repayments must be equal instalments of capital and interest each year.
- The loan must be for a period not exceeding 1 year and can only be rolled over once (provided there is adequate security)
One other advantage of using a SSAS rather than a collection of SIPPs is that it more easily allows co-mingling of the underlying investments. This can make investing in commercial property, say, somewhat easier, as with a SIPP, each SIPP would be a separate purchaser. With a SIPP there is one purchaser.
Property purchase with multiple SIPPs is particularly complicated where the SIPPs are not all with the same Provider.
So using a SSAS rather than several SIPPs can make property purchase easier and in some cases cheaper.
And for a Â“groupÂ” eg a family or business colleagues, a SSAS might be cheaper than several SIPPs.
Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:
We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing. Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.
This Newsletter is intended for professional advisors only, not members of the general public
MW Pensions Ltd
Tel: 0151 328 1777
Fax: 0151 328 0707
Authorised and Regulated by the Financial Services Authority
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