SSAS: the pension that is all about you
As a small business owner, you have an obligation to provide your employees with some sort of pension scheme benefit. But what do you do for yourself? Higher earners often have more options available to them and are able to take advantage of different schemes. We always suggest that business owners take a good look at the SSAS option.
The key benefits of SSAS, at a glance:
- A SSAS is more tax efficient than keeping cash in your business
- Your investment will grow tax-free
- Under current rules, you can withdraw up to 25% of the value at age 55 – tax-free
If you invest £100k at 1% monthly return, over 20 years that £100k becomes £650,000 after tax. If your investment is untaxed (by investing through a tax-free pension for example), your return at the same rate would be £1m – thanks to the impact of compounding.
Now to sweeten the deal even more, if you were to invest an additional £10k per year then the numbers grow to £1.2m after tax or £1.7m if you are using a tax-free investment!
SSAS stands for Small Self-Administered Scheme, and the key to making this work for you is in the name. It is self-administered which means that you have a far greater level of control over the destiny and use of your investment in both your present day and future needs.
I’ll come back to the flexibility and control benefits in a moment, but let’s get the two major financial wins on the table first:
Number one – when you pay into your SSAS pension you will receive corporation tax relief. Number two – your investment into your SSAS will grow tax free, regardless of how you choose to administer the funds.
Self-administration puts you in control
As with any pension pot, you will be entitled to withdraw a 25% lump sum of your pension, tax-free when you reach the age of 55 (there has to be some benefit to getting older). But here is where a SSAS starts to present some exciting flexibilities and opportunities, over and above an ordinary pension scheme.
Draw-down: After reaching the 55 landmark, you can set your SSAS up with a draw-down facility, allowing you to take out the funds, as you see fit, at anytime that you want (and only be liable for personal tax). If you left the money in your company, in order to draw it out as dividends you will be hit by dividend tax at an additional 7.5%.
Administering your investment: Traditional funding options mean that your money is whisked away and bundled up into whatever scheme (or schemes) your pension provider chooses. With a SSAS you get to influence that choice. For example, we recommend that business owners invest in property portfolios (like those run by Propiteer). The benefit in doing this means that you can influence how hard your money works for you – and it is all tax free.
Borrowing from yourself: The final benefit arises in the scenario where you need to invest in a new project, finance the next big step-change in your business growth or cover any other type of major business cost. Instead of going to the bank, you can simply borrow from your own pension pot. Repayments incur interest just like any other loan, but the interest payments are paid directly into your pension pot, increasing its value even more.
Note: there is a cost to running a SSAS (usually around £1000 pa), but the return on that investment should be significantly higher if you manage it in the right way.
For more information on how to set up your SSAS, or if you have any questions, please get in touch.
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