It’s quite common now to see raised eyebrows and hear surprised noises when a new SSAS is established.
Much of the time there are alternative pension arrangements that can achieve a client’s aims cost effectively, and that’s great. But there are sets of circumstances where SSAS fits the bill best. Here are three that we’ve seen in the last few months.
This is perhaps the modern evolution of the circumstances in which many 'old school' SSAS were established before 2006 and the introduction of the Annual Allowance.
Five colleagues have formed a new-ish company for their latest business venture. They need a property to trade from. There is funding for the business but they don’t particularly want the company’s capital to be in the property, to help them with liquidity. All five have had previous pension arrangements, and have built up substantial funds between them. In total, there would be sufficient funds from these arrangements to enable a suitable property to be purchased, if borrowing could be arranged.
They could have arranged, say, five SIPPs to jointly buy the property. But this idea ran into a snag. Their preferred lender had a sticking point with the security for the borrowing being spread across multiple arrangements. They needed comfort that the loan could be called in fully from a single source, in the event of default.
The solution was to arrange a SSAS with all five members transferring in their previous funds. The lender had a single borrower to deal with, and the security and property ownership were simplified. The overall running costs of a single SSAS versus separate SIPPs are broadly comparable, with the lower costs of the administration of property and borrowing offsetting the additional regulatory work the SSAS has to do compared to a SIPP.
The big build
Funding for infrastructure projects is often undertaken using pooled investment vehicles. These are complex financial structures run by specialist, highly entrepreneurial fund managers. As such, the management of these firms want to invest some of their own pension funds in the funds they manage.
The investment vehicles used are not available to private investors, and being unquoted are quite often not permitted in many SIPPs under the provider’s investment policy. This often stems from background issues such as the capital adequacy requirements, or the cost effectiveness for them of undertaking “due diligence”.
A SSAS can offer a home for those investments. Clearly, it is not a low cost activity. The investigation of the proposed investment is bespoke, complex work. There also are not many groups undertaking this kind of fund management, so this line or work is almost definitively 'niche'.
Lending for growth
Loans to sponsoring employers are a traditional driver for establishing a SSAS. There are still cases where a loan to the entrepreneur’s business using accumulated pension funds is a useful source of corporate finance. There are strict criteria for tax efficiency, but for a company with property assets to offer as security, a SSAS can be a good vehicle, particularly where the client would like to keep their finances “in the family”. Not unlike the first example in this article, the SSAS was primarily funded with transfers from previous arrangements. The loan was secured against a property owned by the company.
In that case, an alternative might have been to sell the property to the pension scheme which instead secured the loan. In this instance though, the preference was to avoid the need to pay rent, to assist with liquidity longer term. One of the appeals of a SSAS was the scope for choice between the property sale and loan routes to access cash.
For more information about this topic, please contact your usual Barnett Waddingham consultant. Or you can get in touch with me below.
Please bear in mind that the SSAS team do not provide regulated financial advice. So while we can help with the repair work, we cannot provide guidance on what might be the most suitable investments, or course of action regarding benefits, for individuals.
Visit our self-invested pensions hub
We're committed to keeping you up to date with our latest news and commentary. Access a selection of content that may help you with difficult pension choices.Find out more
Stay up to date
Get the latest independent commentary and exclusive insights from a range of experts at the forefront of pensions, investment, insurance and risk – tailored to your preference.Subscribe today