Funding for retirement
The majority of property investors that I speak to looked to property to either enhance or replace their previous retirement plans, which they were concerned would not deliver the types of investment returns that they were promised, hoped for or needed to give them the income that they required when they retire.
When these investors consider the pension(s) that they left behind the term SSAS (Small Self Administered Scheme) is one that is often talked about, but what exactly is a SSAS pension and why is it something which is so attractive to property investors?
What Is a SSAS?
Basically a SSAS is a money purchase company pension scheme established to give an individual or individuals a tax efficient retirement vehicle over which they have more control and flexibility of the investment decisions made than they would in a traditional pension scheme, where these decisions are made by the fund managers. A SSAS pension can invest in all of the areas allowable through a traditional pension scheme, such as stocks and shares, commodities, corporate bonds and gilts as well as giving the members additional opportunities such as those documented in the SSAS USP section below.
As a SSAS pension is company pension scheme it is only accessible to investors who operate as directors of their own limited company, something which many property investors are being encouraged to do by their accountants on a regular basis.
Members will act as trustees (Member Trustees) of their own scheme alongside corporate or professional trustees appointed by the SSAS pension provider who ensure that any transactions made by the pension scheme adhere to HMRC rules and regulations, this is vitally important as any unauthorised payments could result in a tax payment being levied against the scheme, which defeats the object of a tax efficient investment vehicle. The corporate trustees also have a duty to ensure that any investment chosen will be a prudent investment and to the benefit of the scheme and the members.
You can find out more about SSAS pensions on our website here.
What is the USP of a SSAS?
When considering a SSAS pension many people ask what are the additional benefits over and above those offered by a traditional pension scheme.
One of the most attractive options for many property investors is the ability to make a loan from the pension scheme to their limited company which can be used for any legitimate purpose for the growth of the business. We have a specific page on our website dedicated to this subject which you can find by clicking here. There are strict criteria for any loans from a pension fund which are stipulated by HMRC. Below is an example of the HMRC rules, which are not exhaustive and a link to the HMRC pension loan back rules.
The loan term cannot exceed five years.
Interest charged on the loan must be at least 1% above the average base lending rate.
The loan must be secured as a first charge against an asset or assets of at least equal value to the loan plus the loan interest.
The loan can’t be more than 50% of the net value of the scheme assets.
The loan must be repaid in equal annual instalments.
The ability to invest a pension in property in a hands off manner is also an attractive proposition for people who have chosen property as their preferred retirement investment strategy. A SSAS pension gives you the ability and flexibility to look at these options through property crowdfunding and loan note property bonds which give a fixed return over a fixed term with a legal charge on the underlying asset of property as a security. Typically the terms and returns on these types of investments are between 1 and 5 years and 6% and 12% per annum.
Where do I find out more?
The Landlord’s Pension have put together our “Guide To SSAS Success 2018” which goes into more depth about why you should consider a SSAS pension and explains some real life case studies showing how business owners have utilised SSAS pensions to grow their businesses. You can download the guide by Clicking Here
For property investors who have already made the decision that they want to use property as their investment of choice for their retirement planning rather than relying on the traditional stocks and shares portfolios, either by the use of existing or frozen pensions or new pension contributions there is for those who qualify, a facility to do this.
If you’d like to find out more about how The Landlords Pension could help you grow your retirement fund Click Here to arrange to speak with one of our experienced consultants.