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The continued importance of SSAS to accountants and their clients

Accountants continue to recognise the importance of small self-administered pension schemes (SSAS) for their business owner and private clients, writes Richard Mattison, founding director, Whitehall Group

During and since lockdown we have seen an increasing number of accountants ask us to establish SSAS pension schemes on behalf of their clients, typically business owners, directors and senior executives, as well as businesses run by family members – two or three generations in some cases and also clients coming up to and in retirement.

In addition to a competitive fee structure and slick administration, accountants tell us that SSAS are the most flexible type of pension arrangement in the UK. Tracing their origins to the 1970s, SSAS are subject to HMRC approval and regulated by The Pensions Regulator (TPR) which also oversees auto-enrolment and monitors employers’ and trustees’ duties to pension scheme members. This means that they are very tightly regulated and the HMRC’s stringent process of approval adds reassurance to both account and client.

The current economic anxiety, shortages of both skilled and unskilled labour as well as raw materials, enormous increases in the price of energy and utilities, sharp tax rises and the spectre of inflation all add up to create more headaches.

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The accountants who recommend SSAS tell us that stability as well as flexibility is what their clients appreciate. The classic loan back is a good example: provided there is satisfactory security, up to 50% of the pension fund can be lent to sponsoring company (ies) to assist with their trade. A SSAS is also allowed to invest up to 5% of its fund in a sponsoring company and up to 20% of the fund in total (e.g. 5% in four sponsoring companies). This can still give a much-needed cash boost.

Reflecting on the surge in interest in SSAS, David Teckoe of national firm Haines Watts said, “As an accountant in practice I find that many company clients consider a SSAS to be a very effective and efficient way of protecting assets in a tax exempt environment.

“This is mainly achieved through pension contributions made on behalf of company directors and the use of those contributions to acquire suitable assets within the pension fund.

“Capital appreciation and income generated by those assets whilst in the registered pension scheme are free of taxes, whilst the pension fund itself, as a form of discretionary trust, is free of inheritance tax, under current legislation.”

For example, when it comes to commercial property, the typical defensive strategy we see is for the SSAS to purchase the company’s premises. This releases cash back to the business and also protects the property from creditors should the business fail, thereby allowing the company to start again in a post-pandemic world. Whilst rent is usually required to be paid by the company to the SSAS, the HMRC guidance, together with input from a surveyor based on the current economic climate means considerable rent-free periods can be incorporated into leases allowing a company time to recover before it starts paying rent.

In addition, as more and more commercial property becomes available on the market, clients seem to be getting organised in readiness by establishing and funding their schemes and waiting to pounce on the best commercial property deals. We are now seeing an increased interest in commercial property and are bracing ourselves for a surge in property work over the next few months.

The activity here seems to match that for loans and demonstrates how clients were using their pension schemes as a source of funds both for living expenses as well as business funding. The number of retirements has reduced more recently and is noticeably lower that the same time last year which indicates a reduction in the panic-factor.

We find that accountants are now more aware than ever of the uses of a SSAS and how the end-clients really appreciate the power of the product when used in tandem with their businesses.

Nigel Bennett of Manchester-based Hallidays concluded: “A SSAS is a key element to retirement and financial planning, ring fencing, risk mitigation and has inheritance tax benefits. It also works effectively alongside a trading entity as a vehicle for acquiring commercial property which may be used by the trading entity and as explained above, may also be borrowed against.

“Clearly each individual, family and business circumstance should be reviewed carefully to ensure SSAS is the most appropriate vehicle. However it is a key building block of a structural financial plan especially for OMBs and SMEs.”

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