How SSAS Pensions Offer Greater Control Over Investments
Family-run businesses and small to large organizations running small self-administered schemes (SSAS) can secure more investment benefits than traditional pension plans. This article will expatiate on the peculiarities of SSAS pensions and how they offer greater control over investment decisions.
Overview of SSAS Pensions
Small self-administered schemes are a type of occupational pension scheme designed to serve company directors, select employees, and their family members. According to the UK HMRC’s rules, SSAS pensions can only have a maximum of 12 members.
Each member doubles as a trustee and can influence the pension’s investment decisions. The trustees can hire a pension fund manager to oversee the scheme as the administrator. However, the SSAS administrator will also co-sign with the trustees on any investment decision, giving the beneficiaries greater control over their investments.
SSAS pensions offer several financial benefits, including specific tax reliefs. All contributions to an SSAS pension qualify for tax relief, which includes a tax exemption of 25% of the total amount invested. Each SSAS member can start drawing benefits from age 57. There’s the option to either cash in 25% tax-free of the lump sum or get a 25% tax relief on each withdrawal.
7 Ways SSAS Pensions Offer Greater Control Over Investment Decisions
1. Stocks and Shares
Stocks and shares are popular investment products for pension schemes. Each member of the SSAS is in charge of how investments are made, and the decision on which particular stocks to invest in is co-signed by the entire board of trustees. The capital gains from stocks and shares are free from income tax, which helps trustees cash their profits without any tax liability in the long run.
2. Business Loans
SSAS pensions allow the administrator to take business loans from the fund. This loan-back follows some crucial rules set by the HMRC, some of which include a maximum loan amount of 50% of the total fund with a maximum of 5 years’ term. These loans can be used to refurbish the business’s property and for other growth-related purposes.
3. Commercial Property
SSAS members can use the fund to invest in real estate properties. While HMRC regulations do not approve of SSASs investing in residential properties, members can invest in commercial properties. These properties can include office space, retail units, and warehouses, which can provide a steady income stream.
For SSASs to maintain profitability, the profits earned from the properties must exceed the maintenance costs. This makes it crucial for members to do their due diligence in vetting the commercial property before investing in it. SSAS members also enjoy tax-free income on commercial properties, which is a significant advantage for the business in the long run.
4. Government Gilt
SSAS pensions provide a wide range of investment flexibility and allow members to access government gilts. Government gilts are low-risk bonds issued by the UK government. It’s one of the common investment options for SSASs as it offers a fixed interest at maturity. Unlike stocks and shares, which are subject to high volatility, government gilts offer more predictable returns. SSAS members who prefer a safe haven for their funds can opt for government gilts for stable returns.
5. Property Loans
SSAS members can choose to invest in property loans for higher returns. Most property loans are between 2 and 5 years, and the loan agreement passes through each trustee before processing. Real estate developers use property loans to get funding for project development. After completing the project, the developer sells the completed property for a fixed return. SSAS members or the pension fund administrator are also in charge of deciding on a clear exit strategy to ensure the loan is repaid.
6. Alternative investments
In addition to stocks, bonds, and physical properties, SSAS pensions allow members to invest in alternative investments like gold and cryptocurrencies. SSASs can invest in gold in various forms, whether online through forex brokers or physically, such as gold bars and coins. Gold is generally viewed to be a safe haven in times of economic crisis and inflation. This is due to its relatively stable price momentum, making it reliable for long-term investments.
On the other hand, cryptocurrencies present opportunities for high-yield products but are also known to be highly volatile. Due to the enviable returns from cryptocurrencies like Bitcoin, demand for crypto assets is on a steady rise. Within the last five years, the UK has witnessed the rise of crypto SSASs designed primarily for crypto investments. SSASs can draft a strategy that involves a mix of low- to medium-risk investments for maximum returns.
7. Unit Investment Trusts
SSASs have the option of investing in unit investment trusts (UITs). UITs contain a diversified portfolio of securities, which can include stocks and bonds. SSAS members partner with investment advisors to secure the best unit investment trust that aligns with their business objectives.
Some UITs are designed to outperform a specific market average, like the S&P 500. Others are geared towards collating investment products that yield dividends. SSASs can also choose tax-based UITs that contain state-exempt or federal-exempt fixed-income securities. Most UITs mature within 2 years, although some may extend to 5 years.
Greater Investment Freedom with SSAS Pensions
SSAS pensions offer more control and flexibility over investment decisions than traditional pension funds. SSAS members determine how the pension fund is allocated to various investments. Unlike other pension funds with limited investment options, SSASs can invest in a wide range of assets, including commercial properties, stocks, bonds, government loan notes, property loans, unit trusts, and physical assets like gold.
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