SSAS vs SIPP Pensions

March 5, 2023
Piggy Bank box on top of stacked coins - pensions and retirement fund SIPP and SSAS differences and benefits

 Investing in a pension is a crucial step towards securing your financial future. As we age, our ability to earn income decreases, and having a pension can provide a reliable source of income in retirement. In this blog, we'll explore the benefits of investing in a SIPP and SSAS pension and why it's a smart financial decision.

A SIPP (Self-Invested Personal Pension) and a SASS (Small Self-Administered Scheme) are two different types of pension schemes available in the UK. While both are designed to help individuals save for retirement, there are some key differences between the two.

 

What’s a SSAS pension?

SSAS pensions, or Small Self-Administered Schemes, are a type of pension scheme that is designed for small businesses and company directors in the UK. These schemes offer a high degree of flexibility and control overinvestment decisions, as well as generous tax benefits.

SSAS pensions can be used by any company with fewer than 11members and are particularly popular among family-owned businesses. They give company directors the ability to invest in a wide range of assets, including property, stocks, and shares, and even loans to other companies.

One of the key benefits of an SSAS pension is the ability to make loans to the sponsoring employer. This can be useful for businesses that need to raise capital and can also provide an additional revenue stream for the pension scheme.

In addition to the investment flexibility, SSAS pensions also offer generous tax benefits. Contributions are tax-deductible for the company, and the investments grow tax-free within the pension scheme. Benefits can be withdrawn from a SSAS pension scheme, like a workplace pension, from the pension pot at the age of 55 (57 in 2028), by taking 25% as a tax-free lump sum, whereas higher rate taxpayers can claim additional relief on their tax return. The assets and investments within the scheme have no tax liability, and the same applies to any property in the scheme would be exempt from capital gains tax on the final sale.

SSAS pensions are commonly known as a ‘family pension’ as it can be passed through generations. Non-employee family members can join the scheme, and when original members have passed on, the assets and pay benefits in the scheme can be passed to these contributed family members.

Overall, SSAS pensions are a powerful tool for small businesses and company directors in the UK. They offer a high degree of flexibility and control, as well as generous tax benefits, making them a popular choice among those looking to build wealth for their retirement.

 

How does it compare to SIPP pension scheme?

A SIPP (Self-Invested Personal Pension) is a type of personal pension available in the UK that allows individuals to have greater control over their pension investments. With a SIPP, individuals can choose a wider range of investments, including stocks, shares, and commercial property. This can offer more flexibility and potentially higher returns compared to traditional pension plans.

One of the key benefits of a SIPP is the ability to manage investments from a single account. This can help to simplify retirement planning for individuals who may have multiple pension plans with different providers. Additionally, a SIPP can offer tax benefits, as contributions made to the account are usually tax-deductible.

Another advantage of a SIPP is the potential for greater investment returns. As the individual has more control over their investment choices, they can potentially choose investments that are better suited to their risk tolerance and investment goals. However, it's important to note that with greater control comes greater responsibility, and individuals need to be aware of the risks associated with investing in the stock market.

One potential downside of a SIPP is the higher fees associated with managing the account. As the individual has more control over their investments, they may need to pay additional fees for access to investment platforms and other investment-related services.

Overall, a SIPP can be a valuable tool for retirement planning for individuals who are comfortable with taking on more investment risk in exchange for greater control and potentially higher returns. However, it's important to carefully consider the risks and fees associated with a SIPP before deciding. Consulting with a financial advisor can be helpful in determining if a SIPP is the right choice for your retirement planning needs.

 

SIPP VS SASS – how do they differ?

With the above information, you can see the slight similarities in each pension scheme, but one of the main differences between a SIPP and a SASS is who can participate in the scheme. A SIPP is available to anyone who is looking to save for retirement, whether they are employed or self-employed. A SASS, on the other hand, is only available to company directors and employees of small businesses.

Another difference is the level of control the individual has over their pension investments. With a SIPP, the individual has full control over where their money is invested and can choose from a wide range of investment options, including stocks, shares, and property. A SASS, on the other hand, is controlled by a group of trustees who make investment decisions on behalf of the scheme members.

What if you’re self-employed?

For self-employed individuals, a SIPP can be particularly beneficial as it allows them to take control of their retirement savings. ASIPP allows individuals to invest in a wide range of assets, including commercial property, which can be used to generate income for retirement. This can be particularly useful for self-employed individuals who may not have access to a workplace pension scheme.

Similarly, a SASS can be a good option for small business owners who want to take control of their pension investments. By setting up a SASS, the business owner can use the scheme to invest in assets that will benefit both the company and the individual's retirement savings.

It’s your choice to make

In conclusion, both SSAS and SIPP pensions offer advantages and disadvantages for individuals looking to save for retirement in the UK. While SSAS pensions provide flexibility in terms of investment options and control over assets, they may not be suitable for those who prefer a more hands-off approach. On the other hand, SIPP pensions offer a wider range of investment options and can be more cost-effective, but individuals must rely on the expertise of their chosen provider.

Ultimately, the decision between SSAS and SIPP pensions will depend on an individual's personal circumstances and preferences. It's important to consider factors such as investment goals, risk tolerance, and desired level of control over assets when making this decision.

Regardless of which pension option is chosen, it's crucial to start saving early and regularly to ensure a comfortable retirement. Both SSAS and SIPP pensions provide tax-efficient ways to save for the future, and seeking the advice of a financial professional can help individuals make informed decisions that align with their long-term goals.

 

For more information, please speak to our team today. 

A PENSION IS A LONG-TERMINVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THEPLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANYINCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THELEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTEDBY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

THE TAX IMPLICATIONS OF PENSIONWITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION ANDREGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICETO UNDERSTAND YOUR OPTIONS AT RETIREMENT. 

 

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Piggy Bank box on top of stacked coins - pensions and retirement fund SIPP and SSAS differences and benefits

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