Is self-investment required?
Much of the investment flexibility is common to both Sipps and SSASs, although the latter is permitted to lend to the founder employer. A Sipp may also lend as an investment, but only to parties with no connection to the member through family or business ties. The SSAS facility permits for up to 50 per cent of the net scheme assets to be lent back under a documented and ‘arm’s length’ basis. While conditions apply, limiting the maximum term of the loan and requiring commercial periodic repayments, the loan can be a useful source of company funding and due to the flexibility of interest rates, a good deal for the company, as the borrower, and the pension scheme, as an investment.
Another often-touted advantage is the ability for a SSAS to acquire shares in the founder or associated employer using a maximum of 5 per cent of the fund for each employer and a maximum of 20 per cent overall. However, taxable property rules introduced in 2006 mean that such an investment without incurring tax charges is only prudent in a very limited range of circumstances.
How many owners will participate?
The SSAS’s single trust route also permits pooling of assets for multiple members. It might be that four directors of a company all with £75,000 of pension assets could not individually reach the minimum level for investment with a certain discretionary fund manager, but collectively they could. Scheme allocation between members is also a simple arithmetical exercise where with Sipps, reallocation of assets between individual schemes requires the buying and selling and transfer of title between vehicles.
The SSAS common trust fund principle also permits the passing down of assets through a generation without sale. New cash contributions for younger members can be utilised to pay the benefits of the older members with a corresponding shift in the proportion of ownership of other longer-term assets such as property.
A SSAS will become more economic to administer the more members it has. It is quite often cheaper to run a SSAS with three or more members than the equivalent number of individual Sipps.
Who will pay the fees?
A Sipp provider will most usually deduct their administrative fees directly from the Sipp member fund. Thus the fee payment effectively depletes the member fund.
A SSAS, again being an occupational scheme, may have its administrative expense settled by the employer, who themselves should be able to treat the expense as a tax-deductable payment.
Regulation, complaints and compensation
Regulation may become a key feature in the selection of a suitable client product since the operation of both Sipps and SSASs are currently under review.
The marketing and operation of a Sipp is regulated by the FCA, which is currently conducting a third thematic review covering processes and operation of Sipp providers as well as the financial resources retained to facilitate an orderly wind up of the business should it be required. It is likely that the results of the review may lead to an increased regulatory burden on the Sipp provider which itself could increase costs of the product.
