SIPP or SSAS? Which is most suitable for you?

These days, running a business means running a pension scheme, so thanks to Automatic Enrolment you are helping your employees save for retirement.  You have probably spent a great deal of time ensuring that you have the most appropriate solution for them, and that you have met all your legal obligations.

But what about your own retirement plans?

 Get in control with a SIPP?

Self-invested Personal Pensions, or SIPPs, are a popular solution for people with financial and investment experience with the knowledge and confidence to manage their investments themselves.

Instead of trusting your pension investments to a fund manager, they let you invest as you wish.

With greater investment freedom, many people have found that they can provide excellent returns – although the risks may be higher than leaving your investment to an expert.

SIPPs are set up by insurance companies or SIPP specialists who remain the trustees but allow savers control over the investments, which can include assets such as commercial property. Anyone can take out a SIPP, but they may involve a minimum fund size because of the high costs compared to standard personal pensions.

As an employer you can contribute to your own SIPP through your business. This could potentially have some important tax advantages, as the contributions can be made before profits.

Or invest in your business with a SSAS

Small Self-Administered Schemes or SSAS are less common, but if you are a business owner, they could offer a you an important additional benefit.

A SIPP is owned by a pension provider. You have considerable freedom in the investments you choose, but ultimately, they will set the rules and may restrict what investments will be made. A SSAS is owned by the members, and within certain limits, they can invest in what they want.

The means that with a SSAS you can invest your pension funds into your own business – and enjoy a low-cost source of funding.

Lending to your own business

If you save in a SSAS, you can lend up to 50% of the net market value of the schemes assets to your business, making your SSAS a valuable source of additional funds. There are, however, some restrictions. The money loaned must be a real investment, rather than an interest-free loan and must be paid back by the company over a period not exceeding 5 years with a reasonable rate of interest. The rate of interest charged must be at least 1% above the average base rate offered by six leading high street banks, rounded up to the 0.25%, but this could still be a rate substantially below that offered by a commercial lender.

So, with a SSAS, you could use your pension fund to buy your business premises or major capital equipment or fund any other business initiative that can bring an identifiable return.

Thanks to the tax advantages of pension investment, a SSAS can provide a cost-effective way to raise funds. For some small business owners, it could mean the extra cost of setting up a SSAS as opposed to a SIPP is well worth the money.

Only company directors can set up a SSAS, which can have a maximum of 11 members, who will also be the trustees. There are greater costs and responsibilities involved – including a regular fee from a pensions administrator who will issue an annual report for HMRC.

All pensions and most business finance are complex and need expert support. At Continuum we would be happy to provide it.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of your pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.

Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.

It may be difficult to sell or realise the investment, or obtain information about its value, or the extent of risks to which it is exposed.

The value of property investments and income from them can go down as well as up and investors may not get back the amount originally investment.

As property is a specialist sector it can be volatile in adverse market conditions, there could be delays in realising the investment.

Property valuation is a matter of judgement by an independent Valuer therefore it is generally a matter of opinion rather than fact