Business owners in the United Kingdom are facing increased inflation and a sharp increase in costs. Many businesses are having a tough time managing cash flow and keeping emergency funds. Yet, for business owners, the Small Self-Administered Scheme pension could unlock more funds for investment.
What are SSAS pensions?
One of the pension schemes available for business owners is the Small Self-Administered Scheme (SSAS). An SSAS is a defined contribution pension that is self-managed by the members, who are often directors, senior staff, or family members of employees of a small or family-run business. SSAS allows members to manage their pensions with more flexibility than Self-Invested Personal Pensions (SIPPs).
In recent years, there has been a noticeable shift among UK business owners towards adopting SSAS pensions, driven by the desire for greater control over retirement funds and some tax advantages. These benefits are particularly important for UK business owners as they grapple with rising costs and other financial difficulties.
Benefits of SSAS pensions
There are three key benefits that business owners enjoy when they switch to SSAS pensions. The third is especially beneficial to owners who want to raise funds for business processes.
Tax benefits
SSAS pensions allow members to claim tax relief under UK laws. Members who are basic-rate taxpayers receive a 25% top-up on their contributions, while higher-rate taxpayers can claim additional relief through self-assessment. SSAS members can also enjoy exemption from capital gains tax and income tax on rental income generated by commercial property investments.
Business owners can also increase their business savings since employers’ contributions to SSAS are deductible against corporation tax and are also exempt from National Insurance Contributions (NICs). Descendants of SSAS members can also enjoy tax-free inheritance since the SSAS pensions are considered external to estates.
Note that the HM Revenue & Customs (HMRC) has important updates for the 2025 tax year to help taxpayers, including SSAS pension members, to file tax returns correctly.
Flexibility and greater control
Other schemes typically minimise control over pensions, leaving them under the power of the pension managers. SSAS, however, allows members who are also trustees, to manage and administer their funds the way they deem fit. Members can invest in several assets, including stocks, bonds, crypto, and commercial property.
The flexibility of investing in different assets allows business owners to turn pension contributions into business investments and potentially improve their revenue. Business owners can use their SSAS to expand business operations and build a more robust financial portfolio before retirement.
Opportunities for business investments
Businesses looking to raise funds can invest funds from their SSAS Pensions. Members can get liquidity and support for business operations, taking up to 50% of their contribution as a business loan. The loan complies with HMRC rules, such as having a maximum term of five years and assets to back the loan.
This is a major reason why UK business owners are switching from other pension schemes to SSAS. The business loan can expand operations, improve revenue, and finance profit-yielding assets. The loan rates are often lower than other sources, and directors can invest in their own company by purchasing equity stakes or other assets.
Leveraging an SSAS can be a game-changer for businesses. The scheme allows owners to buy commercial property and lease back to their businesses or others, buy equity stakes to invest in their companies, and offer a consolidation retirement vehicle where fees are independent of fund size.
How to switch to an SSAS pension
Switching to an SSAS pension could be the best move for a business. Here’s how business owners can make the switch.
- Establish an SSAS
Establishing a licenced pension provider is the first step to setting up an SSAS. This involves obtaining a Pension Scheme Tax Reference (PSTR) from HM Revenue & Customs (HMRC). The process usually takes up to eight weeks and involves appointing a corporate trustee for regulatory compliance. It is important to consult a professional during registration and to meet deadlines for completing documentation.
- Transfer existing pensions
Business owners with other pension schemes can transfer the pension funds to the new SSAS to simplify management and reduce costs. Note that the new pension fund must accept transfers for this to work.
- Select investments
After registration, SSAS members can start selecting investments that align with their financial goals and risk tolerance. Members can decide on a mix of traditional and unconventional assets, such as stocks, bonds, commercial property, private equity, and cryptocurrencies. It is important to develop an investment plan that aligns with members’ business and retirement goals.
- Manage SSAS portfolio
Once operations begin, it is crucial to monitor compliance with HMRC and regulatory requirements. This includes regular reporting and administration, periodic reviews, and adjustments to the portfolio as needed.
Real success stories
UK business owners who want to explore alternative funding sources to escape the sluggish economy can take inspiration from Toby and Kate Spanier, a UK-based couple who leverage the advantages of a small SSAS pension to transform their property investment.
Toby and Kate moved from London to Kent and decided to explore the opportunities in the property market by refurbishing dilapidated and unmortgageable properties. They achieved this by securing loans for them from their SSAS pension funds. In this way, Toby and Kate raised interest-free loans to generate income for their company.
Paul Hastings is another business owner who moved his pension to an SSAS and leveraged it to grow his property investment and development business.
SSAS pensions are a smart move for UK business owners
SSAS pensions are becoming a popular choice for UK business owners looking for greater control, tax benefits, and new investment opportunities. Unlike traditional pension schemes, SSAS allows members to invest in their own businesses, secure low-cost loans, and build long-term financial stability. With the right planning and guidance, switching to an SSAS pension could be a game-changer for business growth and retirement security.