A Small Self-Administered Scheme (SSAS) can give business owners significantly more control and flexibility than conventional pensions. However, that flexibility also creates additional responsibility and risk.
The main disadvantages are:
- More responsibility. SSAS members are also the scheme’s trustees, meaning they have significant responsibilities to the scheme.
- Greater complexity. Property purchases, employer loans and other specialist investments must comply with pension tax legislation and HMRC rules.
- Tax consequences if things go wrong. An incorrectly structured transaction can result in significant tax charges.
- Concentration risk. Business owners can end up with a large proportion of their pension invested in their own business or commercial property.
- Liquidity risk. Property and private investments may be difficult to realise when pension benefits need to be paid.
- Higher costs. A SSAS may cost more to establish and administer than a simple personal pension for a low fund value.
- Not all investments are permitted. Pension legislation places important restrictions on areas such as residential property, employer loans and transactions involving connected parties.
The biggest risk is often how the SSAS is used; a SSAS itself is simply a pension scheme. The level of risk depends heavily on how the trustees choose to invest it.
For example, lending pension money to a business is perfectly legitimate where the relevant conditions are satisfied. But it also means the pension fund is exposed to the performance of the same business.
Similarly, purchasing commercial property through a SSAS can be attractive but owning one large property may leave the pension heavily concentrated in a single asset.