SSAS: how a niche pension product is bolstering small businesses

Small business owners struggling with the effects of the Covid-19 pandemic are increasingly turning to a novel type of pension plan that gives them much-needed flexibility.

Carpenter and his assistant ©
Covid-19 has caused cashflow problems at small firms
(Image credit: © Getty Images)

Small self-administered schemes (SSAS), a niche product designed by HM Revenue & Customs more than 40 years ago to meet the needs of directors of family-run business, have enjoyed a surge in popularity since the pandemic began.

These schemes offer the same tax breaks on savers’ contributions as other types of private pension scheme, but boast a broader range of investment options. In particular, directors can use the schemes to invest in property on behalf of their companies: buying the firm’s office or manufacturing facilities, for example. The schemes are also entitled to provide loan finance back to the business, subject to strict rules on the proportion of the pension fund lent, secured against the property it holds.

This loanback facility is a particular attraction of SSAS arrangements in the current trading environment, where many small businesses are suffering liquidity and cashflow problems because of Covid-19. Financial advisers warn that it is crucial for directors not to enter into such arrangements lightly, or without taking expert guidance, since schemes making loans in this way are effectively putting the directors’ retirement finances at risk. Nevertheless, in the right circumstances an SSAS could provide viable businesses with a short-term cash lifeline.

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Other advantages include the fact that employers’ contributions to SSASs are deductible against corporation tax and that the schemes are allowed to hold up to 5% of the company’s shares as part of their investment portfolios.

David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.