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An SSAS (Small Self-Administered Scheme) pension is a unique and powerful investment vehicle for business owners, company directors, and family-run firms.
Unlike other pension schemes, an SSAS offers diverse investment opportunities and provides flexibility over how and where you invest. Let’s look closer at where you can place your SSAS pension for investments.
What is an SSAS Pension?
An SSAS is a pension scheme set up by limited companies. It gives members, who can be owners, directors, or senior employees, control over their pension investments and assets. It offers flexibility and potential tax advantages.
The pension consists of up to 11 members, including company directors and their family members. It offers direct control over investment decisions. Because the SSAS is a trust, the members are often trustees.
They collectively decide how to invest the fund’s assets as long as it meets the HM Revenue & Customs rules. Investments from SSAS pensions are made to provide retirement benefits.
What Can You Invest in with an SSAS?
As one of the members of the SSAS, you can invest your pension fund in any HMRC allowable investments. You don’t have to rely on stocks and shares for your pension fund.
You can access diverse options like commercial property, commodities, unlisted shares, managed funds, and crowdfunding.
Commercial Property
Investing in commercial property is one of the most popular ways to invest in your SSAS pension. You can use your SSAS to purchase offices, retail units, warehouses, and industrial premises.
An advantage is that you can buy your business premises through your SSAS and then lease them back to your company.
Your business will pay rent to your pension, causing your retirement fund to grow while providing your company with a property solution.
With an SSAS pension, rent is tax-deductible for your business, and your rental income grows tax-free. The capital gains on property sales are tax-free. But remember that investing in property comes with liquidity risks and market fluctuations.
Loans to the Sponsoring Employer
With an SSAS, you can lend money to your sponsoring employer, the business that established the SSAS. But this must follow strict HMRC rules. The loan will be secured against a tangible asset, with the maximum loan value being 50% of total fund value.
Interest must also be charged, at least 1% above the base rate, and the loan term must not exceed 5 years.
This option is especially attractive for small to medium enterprises seeking working capital or funds for expansion. It allows the business to borrow from its own pension fund, offering financial flexibility.
Stocks and Shares
SSAS pensions can invest in various listed investments, including UK and international equities, investment trusts, unit trusts and OEICs, government and corporate bonds, and exchange-traded funds. Stock investing offers growth and diversification.
SSAS trustees and members can create a tailored investment strategy based on their risk appetite and long-term retirement growth. Using SSAS pensions to invest in stocks and shares has tax advantages.
These include the lack of capital gains tax, and dividends and income will roll up tax-free inside the SSAS. However, investing in equities always comes with market risk.
Unlisted Shares and Private Companies
An SSAS can be used to invest in private limited companies, including family-run businesses and start-ups.
However, the investment must be made for genuine commercial purposes. It must not breach the HMRC’s rules on ‘tangible moveable property’ or ‘taxable property.’
You can invest in your own business, although this is subject to restrictions. There are also options for investing in other non-connected UK companies, angel investing and venture capital opportunities.
So, you can support innovative companies or grow your business while increasing your pension.
Gold and Commodities
SSAS pensions can invest in different types of physical gold, which meets HMRC’s definition of an ‘investment-grade’ asset, meaning gold bullion of a specified purity. Gold is a hedge against inflation and the market volatility.
However, gold will not produce income. It will only rely on price appreciation to provide returns on your retirement funds.
As for commodities and derivatives, they are restricted and typically not allowed in most SSAS schemes. They have to go through regulated investment vehicles.
Managed Funds and Discretionary Portfolios
If you don’t want to manage your investments directly, your SSAS can be used to invest in managed portfolios offered by discretionary fund managers. These portfolios can blend asset classes like equities, bonds, property funds, and alternatives.
The main benefit is professional management and regular portfolio rebalancing based on your investment objectives. It suits SSAS members who want a hands-off approach to long-term pension growth.
What Can’t You Invest in with an SSAS?
While SSAS pensions offer broad flexibility, some strict limitations exist to prevent abuse and avoid tax penalties.
- Residential property is generally not allowed unless through REITs.
- Tangible moveable property like art, vintage cars, antiques, and fine wine are prohibited.
- Investments that benefit members personally outside the retirement income can trigger tax charges of up to 55%.
- Loans to connected parties that break the rules can be penalised.
Having a Professional Trustee or Administrator
With the complex rules and tax implications of SSAS investments, appointing a professional trustee or scheme administrator is essential.
These can help with regulatory compliance, filing returns to HMRC, investment documentation, and scheme records. SSAS pensions offer autonomy, but expert guidance is needed to avoid costly mistakes.
SSAS Pension as a Powerful Planning Tool
An SSAS pension is a powerful and flexible retirement planning tool for business owners and directors who want better control over their pension funds.
With your SSAS pension, you can invest in stocks, shares, commercial property, private companies, and business loans. However, following the pension rules and working with experienced SSAS providers is essential.