A SIPP is a Self Invested Personal Pension. A SSAS is a Small Self Administered Scheme. The first is a personal pension scheme, and is designed for individuals looking to control their pension fund investment. It allows a much wider range of investment options than a standard personal pension, and you control the investment of the fund.
The second, SSAS, is primarily designed for employers – company directors or owners. It allows flexibility, tax efficiency and control over your investments, with an even greater range of options for investment and scope for investment of the pension funds into the employers’ business.
An example of the way a SIPP can be used to secure, for instance, a commercial property would be as follows:
A business owner in his late 50’s has a dilemma, he needs £100,000 to purchase new machinery to develop his printing business and to bring his exiting equipment up to date. He’s also planning to sell the business when he’s 65 so he can retire.
Although he owns the premises he trades out of and has capital, he hasn’t got sufficient liquid cash available to make the improvements and he doesn’t want to approach his bank to borrow £100,000 and then have to pay interest. He’s a classic example of being asset rich but cash poor.
A solution was found.
Fortunately he has a personal pension plan, worth £100,000. He can convert this into a SIPP, a self-invested pension allowing him to invest in and own commercial property. This pension fund can be used to purchase £100,000 worth of the business premises, giving it £100,000 in cash to invest in the machinery required. Over the next seven years the owner can still work in the business whilst renting the premises from his pension scheme. Rent will paid to the pension and the owner is obviously happy to pay rent into his pension rather than interest on a loan to the bank.
Looking forward, the business plus the premises within the pension will all be sold when he reached age 65. The accrued rent and the potential increase in property prices during the seven years will result in a pension fund worth more than £100,000.
As can be seen in this example, pension plans do not have to be seen as money under the lock and key of faceless, financial institutions. They can be used to help develop an individual’s business whilst generating funds for retirement.
We can advise you on the suitability of both SIPPs and SASS’s, and, being whole of market, we can ensure that you have the widest possible range of investment opportunities to choose from. However, the above is just an example and may not be suitable for everyone.