Ever since 6 April 2006 (A-Day), both SSAS and SIPP arrangements are regulated by the same tax legislation. HM Revenue and Customs view both as ‘investment regulated pension schemes’, which means that the basic rules surrounding borrowing, lending and investment are exactly the same for both.
Does this mean there are no distinctions between the two? Unfortunately, no!
Although the underlying tax rules are the same for both, the legislation is applied slightly differently. And while the trend seems that most new investment regulated pension schemes are set up under the SIPP model, there are still lots of SSASs out there.
Briefly, the differences are:
A SSAS is a non-earmarked occupational pension scheme, typically with 12 or fewer members. SSAS schemes are usually for the directors of a business who want to have more control over the investment decisions relating to their pensions and in particular, use their pension plans to invest in the business itself. Each member of the SSAS is usually a trustee. There used to be a requirement for a professional trustee called a “Pensioneer Trustee”, part of whose role it was to ensure that the SSAS wasn’t improperly wound up, but this requirement was removed at A-Day.
SSAS schemes are often provided by a sponsoring employer, such as a limited company or partnership and are regulated by The Pensions Regulator.
A SIPP is a personal pension plan set up by a major financial institution, such as an insurance company, or, in the case of Redswan, a specialist provider where the member has greater control over the investments.
Since 6 April 2007, SIPPs have been regulated by the Financial Conduct Authority (FCA) and are provided by FCA regulated firms like banks, building societies and insurance companies.
Members of a SSAS usually have to be employees (normally directors) of the sponsoring employer, whereas anyone who meets a provider’s eligibility requirements for SIPP membership can take one out.
The differences between a SSAS and a SIPP all stem from the definition of sponsoring employer that is contained in the Finance Act 2004. The definition only applies to an occupational pension scheme, such as a SSAS. Current legislation allows investments to be made in the sponsoring employer, but as a SIPP does not have a sponsoring employer, this gives a SSAS more investment flexibility. Some of the differences are as follows:
SSAS trustees are subject to requirements imposed by the various Pensions Acts. As well as this, HMRC treat scheme trustees as the official Administrator. The trustee and Administrator of a SIPP is invariably the SIPP provider.
The duties of a trustee/scheme Administrator include:
Membership of a SSAS therefore requires a much higher degree of involvement in the scheme than membership of a SIPP.
So, although both SSASs and SIPPs are classed as investment regulated pension schemes and the investment rules surrounding them are virtually the same, there are still important differences in the practicalities of running them.
Which is more appropriate would depend to a large extent on who the members would be and the degree of involvement in the running of the scheme they want.