If you live and work in the UK and are starting to think about retirement, it’s good to plan your funding ahead of time! Thankfully, there are plenty of pension options and plans available to help you make your money travel further. But – when it comes to SIPP vs SSAS – what’s the difference?
Both SIPP and SSAS are investment pension schemes that you can control. The main difference is that SIPPs allow you to manage your own pension pot, while SSASs fall under trustee control.
There are a few other differences you’ll want to keep in mind, as well as some benefits and drawbacks to either option. Let’s dive in.
SIPP vs SSAS – a quick summary
If you don’t have time to read my full breakdown on SIPPs and SSAS programs, here’s a quick breakdown of what you need to know.
- A SIPP is a personal pension that gives you complete control over your investments.
- A SSAS is a joint pension venture shared between directors or trustees of a company.
- Both offer extensive investment options you may not expect from generic pension plans.
- Both can be quite expensive to set up.
- A SIPP is ideal if you want to manage your investments completely on your own.
- A SSAS is perfect for anyone looking to invest in commercial land or property.
What is a SIPP pension?
A SIPP is a Self Invested Personal Pension. It gives you complete control over your retirement pot. This DIY setup allows you to choose where your money is invested, and how much you could potentially make by the time you retire.
Despite the extra control benefits, managing a SIPP can take time and effort. That’s why you can always appoint a trustee or financial manager to take care of your pension pot for you. There are even apps and robo-advisors out there you can use to completely automate the process!
You can use a SIPP to invest in property, stock, commodities, funds, and more. It’s an FCA-backed option that’s open to anyone who can meet the minimum investment requirements, which may vary. With a SIPP, you can also request your employer to contribute through payroll.
Fee structures and market handling will vary from provider to provider, so it’s always good to compare different operators before making a decision.
What are the advantages of a SIPP?
- You can manage and define your retirement and pension plan entirely on your own
- You can invest in uninsured assets, commodities, stocks, shares and properties
- You don’t have to appoint a trustee to take care of your pension pot on your behalf
- It’s great for retirees who have experience in investing
- There are lots of automated/robo investing options available
- It’s a highly bespoke option
What are the disadvantages of a SIPP?
- It can be more expensive than standard pension pots and schemes
- It’s not always simple to run if you have low investment experience
- There’s a higher risk level and losses are entirely your responsibility
- Thresholds to set up SIPPs can be quite high (having at least £75,000 to invest is typically a good place to start)
What is a SSAS pension?
A SSAS (Small Self Administered Pension Scheme) is a retirement program typically set up within a company or workplace. This type of pension scheme is usually director-run and may include a board of other senior staff or employees, typically numbering no more than 12.
A SSAS pension allows company directors more flexibility when it comes to taxation and investment decisions. All members of an SSAS setup are trustees, chosen by the director or ‘sponsoring employer’ in charge. Like SIPP schemes, SSAS programs receive full regulation, but through HMRC and via the Pensions Regulator.
SSAS options allow multiple staff to pool their retirement money together to invest in commercial properties and large assets. Providing the pool has a combined value of at least £75,000, there are lots of different options available.
As all members are trustees in the same scheme, this allows individuals taking part to manage their own money. However, there will often be a single professional trustee or advisor who can help guide members in making decisions.
SSAS programs allow trustees to invest pension money into commercial and agricultural land, as well as retail units and fixed interest stock. However, what one SSAS provider has to offer may differ from the next, meaning it’s always wise to compare and contrast.
What are the advantages of a SSAS?
- You can pool together multiple pensions to invest as a single unit
- You’re in a great position to invest in commercial land and property
- Each member is a trustee
- There’s usually a professional advisor on hand to help you make decisions
- You’re fully regulated by the HMRC and Pensions Regulator
- You can purchase commercial property on lease and pay rental income into the fund
- It’s cost-effective with multiple members
- You can take loans out worth up to 50% of your net assets
What are the disadvantages of a SSAS?
- It’s not ideal for individual investors or pension holders
- It may be more expensive than a SIPP to set up
- There’s a percentage share of the total pot
- There’s less flexibility than you may expect with a SIPP
Is a SIPP right for me?
A SIPP is likely to be good for you if you want complete control over how your pension money is invested. It’s also a great choice if you already spend some time investing money and building portfolios on the side.
If you have a healthy attitude towards risk and value sheer flexibility and exploration over fixed safety, why not compare SIPP plans? Do also remember that you can appoint an advisor or trustee to help you manage and run SIPP investments, too. You’re not completely on your own unless you prefer it that way.
SIPPs can be expensive to set up and run at first, so I personally suggest making sure you’ve got £75,000 at least to invest. I like the DIY approach that a SIPP offers, but again, you need to have some experience of investing and trading to really make the most of it!
Is a SSAS right for me?
SSAS programs can be great for accessing investment opportunities that simply aren’t available through SIPPs or other pension pots. For example, if you want to invest in land or property and don’t mind sharing with other trustees, it’s perfect.
I’d highly recommend it if you’ve already started looking into other pension schemes and are finding the way they’re set up to be too restrictive or simply not in line with your goals. While a SIPP may give you maximum flexibility in that you have absolute control, a SSAS expands the number of options far beyond that of your average pension setup.
What’s better – a SIPP or a SSAS?
Both pension options have their pros and cons, and it really depends on what you want out of your retirement savings!
If you’re considering investing in a SIPP, for example, check out my review of Vanguard and Hargreaves Lansdown to help you get started.
If you’re managing workplace pensions in a different way, take a look at my complete guide to finding and combining pensions from previous employers.
Can you have both a SIPP and a SSAS?
Yes, but only if you’re the director of a company, as otherwise, you won’t be eligible for a SSAS. There are ways you can balance both options, but it may be complex for you to do so.
Do I pay any tax on a SSAS?
You’ll normally be able to remove a lump sum from your SSAS program, around 25% of which is without tax. You need to remove these lump sums in single transactions, and standard tax rates apply to the remainder.
Is there any inheritance tax to pay on a SIPP?
At the time of writing, no, your next of kin won’t have to pay inheritance tax on funds in your SIPP.
What happens to my SSAS when I pass away?
Your SSAS funds will become payable to loved ones if you pass away before the age of 75. This is payable either as a direct pension or in the form of a lump sum. Your next of kin won’t have to pay income tax on any lump sums providing they’re cleared up to two years after your passing.
What is SIPP tax relief?
SIPP tax relief lets you claim an extra 20% on your pension savings backed by the government. Depending on your contributions as an income earner, you may receive an extra 25% from the government on top. SIPPs are free to grow and build without income or capital gains tax at the time of writing.