Understanding the Differences Between SIPP and SASS

Understanding the Differences Between SIPP and SASS Commercial Mortgages for SIPPs and SASSs are something that has never been as popular as it was promised to be, when we talk to clients about their pension borrowing to purchase commercial property one of the first questions that comes up is where the difference is between a […]

January 30th, 2024

Understanding the Differences Between SIPP and SASS

Commercial Mortgages for SIPPs and SASSs are something that has never been as popular as it was promised to be, when we talk to clients about their pension borrowing to purchase commercial property one of the first questions that comes up is where the difference is between a SIPP or a SASS?

Saving for retirement is a crucial aspect of financial planning, and there are various investment vehicles available to individuals seeking to build that all important nest egg.

Two popular options in this regard are Self-Invested Personal Pensions (SIPP) and Small Self-Administered Schemes (SASS). While both serve the common goal of retirement planning, they differ in several key aspects.

One of the first things I have to make clear is that this article is about information and is not advice or any form of recommendation. If you want to know more about your pension options then get in touch and we’ll point you to a dedicated professional.

Definition and Purpose: A Self-Invested Personal Pension is a type of personal pension plan that provides individuals with a high degree of flexibility and control over their investment choices. SIPPs allow investors to choose from a wide range of investment options, including stocks, bonds, and real estate. A Small Self-Administered Scheme is a specialised type of occupational pension scheme designed for businesses owners. SASS is typically established by company directors, offering them greater control over the investment decisions within the pension fund.

Ownership and Control: SIPPs are individually owned, and investors have full control over the investment decisions within their pension plan. This independence allows for a personalised approach to asset allocation and risk management. SASS, on the other hand, is set up by an employer for the benefit of its employees. Company directors or designated trustees have control over the scheme’s investments, providing a collective approach to pension management.

Investment Flexibility: SIPPs are known for their extensive investment flexibility, allowing individuals to choose from a broad spectrum of assets, including equities, bonds, mutual funds, and even commercial properties. While SASS also provides flexibility, it may have some restrictions based on the scheme’s trust deed. Typically, SASS investments include a mix of traditional assets and can include loans to the sponsoring employer under certain circumstances.

Contribution Limits and Funding: Contributions to SIPPs are subject to annual allowances set by the government, and there are limits on the total lifetime contributions that qualify for tax relief. Individuals can contribute from their earnings, and contributions can be made by employers as well. Contributions to a SASS are made by both the employer and the employee. The employer can contribute to the scheme as part of the overall employee benefits package.

Accessibility and Withdrawals: SIPPs typically provide more flexibility when it comes to accessing funds. Investors can start taking withdrawals from their SIPP from the age of 55, and there are various options available, including lump sum withdrawals, annuities, and income drawdown. SASS may have more restrictive rules on accessing funds, and withdrawals may be subject to specific conditions outlined in the scheme’s trust deed.

Borrowing: Both a SIPP and a SASS can borrow to purchase commercial property with the income from that property being paid back into the pension pot. This is something that can appeal to company owners who want more control over their trading premises or are used to using property as an investment vehicle. Given the yields on UK commercial property it is little surprise that many business owners see this as a useful opportunity to maximise their pension pot.

In summary, both SIPPs and SASS serve as valuable tools for retirement planning, catering to the needs of individual investors and business owner respectively.

The choice between SIPP and SASS depends on factors such as ownership preferences, investment goals, and the level of control desired. Before making a decision please always seek professional financial advice to ensure that the chosen pension scheme aligns with your long-term financial objectives. It is a key decision that requires real, considered, thinking.

The rules around the schemes change, limits and regulations change, so always get the best guidance based on the current SIPP and SASS rules.

By Dave Farmer

Please always take independent legal advice before borrowing and independent financial advice before making any pension or investment decisions. If you want to speak to an expert then get in touch.

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.