Possible misconceptions about SIPP & SSAS

SIPPs (self invested personal pensions) and SSASs (small self administered schemes) are both types of member-directed pension schemes that usually provide greater flexibility and control over investments than traditional insurance company personal pensions. However, there can be some confusion surrounding them.

In this article we explain some of the features of each.

SIPPs

A SIPP is a personal pension arrangement which usually offers a wide range of permitted investments.

Possible misconception 1: SIPPs are only used by very wealthy individuals or very high earners

SIPPs usually offer greater investment flexibility and control than insured personal pensions and they are available to anyone who meets the SIPP provider’s eligibility criteria. To be eligible for a SIPP with Dentons, amongst other criteria, clients will need a minimum fund size of £50,000. Our flat fees are not based on a percentage of the SIPP fund value.

You can find Dentons eligibility rules in our FAQs: https://www.dentonspensions.co.uk/sipp/sipp-faqs/

Possible misconception 2: SIPPs always need a financial adviser attached to them

Whilst investments within SIPPs can be more complex than insured personal pensions due to the wider range of investments available, that doesn’t necessarily mean that clients will always feel the need for a financial adviser to be involved.  

Dentons does not require that a financial adviser is involved in a client’s SIPP (while this is not a requirement to use a financial adviser Dentons would recommend that you seek the advice of an authorised and regulated financial adviser.), but please note that no Dentons Pensions staff can provide financial and/or investment advice and clients may wish to use the services of a regulated financial adviser for this important work.

Possible misconception 3: You can invest in anything within a SIPP

Different SIPP providers will have different permitted assets lists, but none are likely to offer a completely unlimited choice. While SIPPs may allow investment in a wide range of assets including commercial property, investment funds, gold bullion, equities and certain loans, this is at the discretion of the SIPP provider and there are a number of investments that are unlikely to be acceptable to a provider. 

This could be because of potential tax charges that could arise for making that investment, or it could be for other reasons such as liquidity issues, the overly complex nature of the investment and so on. 

For more information on the investments that Dentons allow please see 

• Full asset SIPP Permitted Assets
• Single portfolio SIPP Permitted Assets
• Dentons SSAS Permitted Assets

Possible misconception 4: You can access your SIPP money at any time

Unless you are in poor health, or have a protected pension age within your scheme, you need to be at least age 55 before you can begin to take retirement benefits from your pension fund and this is rising to age 57 from 2028. Death benefits, however, can be paid to your beneficiaries after your death at any age.

Possible misconception 5: All of my pension fund is available as a tax-free cash lump sum

The amount of tax-free lump sum (also known as pension commencement lump sum) payable when you take retirement benefits will depend on your circumstances. For more information on this, please see our page on pension scheme benefit allowances  or speak to your financial adviser if you have one.

SSAS

Possible misconception 1: A SSAS can be established by anyone

A SSAS is an occupational pension scheme established by an employer for selected directors/senior employees of the company. This usually means a limited company decides to create a scheme, rather than a partnership (wherein the partners are self-employed rather than being employed themselves). 

Members of the SSAS should be employees (or former employees) of the business, given as a SSAS is an occupational pension scheme. In addition, all members should also be trustees of the SSAS, and that means that all members must be at least 18 years of age because minors cannot act as trustees. 

The maximum number of members in a SSAS is 11.

Possible misconception 2: SSAS are difficult and expensive to set up and manage.

SSASs, like SIPPs, can offer great flexibility in terms of investment choices. This can mean that quite complex investments are held within the scheme –such as loans to employers. 

The paperwork and process to establish a new SSAS is quite different and more expensive compared to that for a new SIPP. Ongoing administration costs can also be more expensive than for a SIPP, but multi-member SSASs might offer economies of scale compared to, say, four individual SIPPs collectively owning one commercial property. 

To assist with establishing and running a SSAS, the services of a hands-on professional trustee (such as Dentons) could prove invaluable. 

SSAS Fee Schedule including 4 Fee Case studies

Possible misconception 3: SSAS members often don’t know their fund values or where the scheme’s monies are invested

All members of a SSAS should also be trustees. All investment decisions within a SSAS should be made unanimously by the trustees, which, of course means that all member trustees should know at all times where the monies are invested.

Assets within a SSAS are generally pooled across the membership. However, the value of a member’s interest, or ‘share’, in the SSAS fund should depend entirely on the contributions and/or transfers paid in by, or for them, along with their share of any investment growth (or loss) and any relevant payments made from the SSAS for them (e.g. lump sum and pension payments and partial transfers to other pension schemes). This fund split calculation can be quite complex and the services of a professional trustee to carry out these at least annually could help greatly.  

Possible misconception 4: SSASs can lend money to anyone

A SSAS can make loans to a connected sponsoring employer within the scheme, as well as to unconnected UK limited trading companies, but different criteria apply to each. In the case of a SSAS loan to a sponsoring employer, HM Revenue & Customs (HMRC) requires that very specific terms apply to the loan and failure to comply with any/all of these will result in tax charges. For more detailed information, please see our SSAS loans page. 

Conclusion

SIPPs and SSASs are close cousins and can be very useful pension vehicles. However, an understanding of their potential features and benefits could help to deal with any misconceptions and in turn help to make an informed decision on which might be most appropriate given your own circumstances. 

For more information, please contact your local Business Development Manager or contact our Sales Support team at enquiries@dentonspensions.co.uk or telephone 01483 521521.

Please note that Dentons cannot provide financial and/or investment advice. If you are unsure about anything you have read, please speak to a regulated financial adviser.