Small self-administered pension schemes, also known as SSAS, are defined contributions that an employer manages for less than 12 people. The business directors do SSAS pension to have more control over how their pensions are invested. The workplace pension is independently controlled by the company that sets it up. It does not need any interaction with insurance companies or financial institutions, and it gives increased retirement benefits and investment flexibility.
What is an SSAS, and is it different from a SIPP?
When it comes to SSAS vs. SIPP, there are many differences. First of all, SSAS is a pension scheme exclusive to the directors of a company. It is a flexible and unique occupational and property pension scheme done under the legislation of company managers. Once you set up an SSAS pension, you get full access to every form of investment available to investors under the rules created by HMRC.
SSAS pension enjoys fund benefits such as tax relief and a tax-free lump sum of 25% when a member turns 55. The drawdown is flexible, and new contributions of up to 40,000 can be made yearly.
SSAS pensions are common in family-run or small-sized businesses as a defined contribution scheme. The scheme is available to all employees and their family members. It may include people who do not directly work for the company but are related to the employee. Per company, only one SSAS pension is allowed and is restricted to only eleven individuals. The scheme accounts are operated by the trustees and scheme administrators, who are often members of the scheme. SSAS rules allow members of the plan to invest in various assets such as commercial property. Commercial loans can be given by the SSAS as long as they are used to purchase assets or help in its growth. The contribution scheme allows the company to borrow money through mortgage as long as it is for investing.
Tax benefit of SSAS pensions
Contributions made by members are eligible for tax relief. Taxpayers get a 25 percent tax top-up. This means that HMRC adds 25 pounds for every 100 pounds paid into the pension. If your tax rate is higher, you can reclaim additional tax relief through tax returns—contributions made by the employer qualify for tax relief which in turn reduces the total tax liability.
Cashing in SSAS pension
As a member of SSAS pension, you can start withdrawing benefits from age 55, but by the time it reaches 2028, the age will change to 57. Like any other personal or work-related pension, you can decide to take the first 25 percent as a non-taxed lump sum or get 25 percent of every withdrawal tax-free. The entitled sum of benefits you are entitled to depend on your employer and your contribution to the scheme. How long the contribution was invested and how it was performed can also affect the number of benefits you are entitled to. Once you receive the tax-free amount, withdrawals will be subjected to the regular income tax rate. The pension may be accepted as an income through income drawdown or by buying an annuity.
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