SIPP vs SSAS: what’s the best choice for small business owners?

Estimated reading time: 2 mins

In the age of auto-enrolment, workers are accustomed to receiving pension contributions from their employers as a mandatory benefit.

The landscape is a little less clear for business-owners and entrepreneurs, however, who often want to seek out more flexible pension schemes in order to save effectively for their retirement.

For these individuals, two of the best options are self-invested pension plans (SIPPs) and small self-administered schemes (SSAS). But which of these is better for business-owners, and which one should they choose?

What’s the difference between these options?

In many ways, these two pension options are identical to one another, particularly in terms of the flexibility and diversification options that they offer to investors. There are a couple of subtle but important differences, however, which may influence your choice based on your own, unique circumstances.

Firstly, while SIPPs are relatively accessible to anyone who has capital to invest, SSAS vehicles are exclusive to company directors. These accounts are also restricted in terms of the number of people who can join the scheme, with up to 12 individuals of a similar status eligible to participate.

Perhaps more importantly, there is an interesting rule associated with SSAS savings vehicles that enables company owners to borrow capital from their pension funds. Given the precarious nature of the economic climate and the fact that independent ventures can struggle to secure credit from traditional lenders, the option of leveraging pension assets to release capital into the business has become increasingly alluring.

Which option is best for SME owners?

Ultimately, this loan facility is the main distinguishing factor between a SSAS and a SIPP. Members of the former can loan up to 50% of the capital directly into the associated business, so long as it is secured and is used to grow or develop the firms’ proposition (as opposed to reducing debt). For entrepreneurs who required additional capital in order to develop their businesses, this option would instantly stand out as the most appealing.

This does not mean that it is the best option, however, as while SSAS vehicles may offer an alternative to bank loans there are a number of more favourable options in the current financial market. Invoice financing allows you to raise funds against your accounts receivable, for example, while minimising risk and safeguarding your businesses core assets.

If you seek out this type of funding option instead, SSAS’ accounts lose much of their core appeal as SIPPs offer many of the same features and can also be continued regardless of your career status and the choices that you make in the future.

This, along with the appealing tax benefits of SIPPs and the fact that service providers such as Bestinvest are able to transfer and manage funds for minimal fees, may be enough to convince entrepreneurs to choose self-invested pension plans as their preferred method of accumulating wealth.

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