Defined contribution: Small self-administered pension schemes
A small self-administered pension scheme is a type of employer-sponsored defined contribution workplace pension that can give the employer additional investment flexibility.
How small self-administered pension schemes work
Small self-administered pension schemes (SSAS) are generally set up to provide retirement benefits for a small number of a company’s directors and/or senior or key staff. They can be open to all employees and their family members, even if they don't work for the employer. The number of members is generally no more than 11.
Insurance companies and other pension providers may offer SSASs. A SSAS is run by its Trustees, who may often be the members of the scheme.
Contributions may be made to the SSAS by the members and/or the employer. Each receives tax relief on contributions made, subject to certain conditions.
A major benefit of SSAS is that it can offer the employer increased flexibility on where the scheme’s assets can be invested. This can include investing in assets that aren't generally available for many other types of scheme to invest in. As an example, a SSAS is able to purchase the company’s trading premises and lease these back to the company. It may also, subject to certain terms and conditions, lend money back to the company and purchase the company’s shares.
A SSAS can also borrow money, subject to terms and conditions, for investment purposes. For example, the SSAS may raise a mortgage to assist with the purchase of the company’s premises by the scheme and the mortgage repayments may then be covered, in all or in part, by the rental income that the company pays the SSAS.
All of the SSAS’ assets are held in the name of the Trustees – there are no ‘individual pots’ for each member, although each member is deemed to hold a proportion of the scheme’s assets.
Drawing your benefits
You can normally start drawing benefits from the SSAS from the age of 55. The value of your benefits from the SSAS will depend on:
- how much has been paid into the scheme on your behalf;
- the length of time that each contribution has been invested;
- investment growth over this period; and
- the level of charges.
Generally, you can decide whether to receive an income only from the scheme or a tax-free cash lump sum and a (reduced) income. The amount of tax-free cash sum that you can elect to take is usually up to a maximum of 25% of the value of your entitlement under the SSAS at retirement. The balance of the your fund is then used to provide income through purchasing an annuity, income drawdown or a pension paid directly by the SSAS from its assets (scheme pension).
The amount of income you receive depends on the options that you select. These include
- the income continuing to be paid to a dependant should you die;
- the income increasing each year to offset the effects of inflation; and
- the frequency at which the income is paid.
Pensions that are paid are liable to income tax, but are not liable to National Insurance contributions.
If you've previously contributed to a pension scheme, you may have retained benefits under the scheme. You may want to consider transferring the value of any old pensions to a new pension scheme. Please talk to us if you are interested in this.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.