SSAS vs SIPP – what's the difference?

How do a SSAS and SIPP differ? 

They're both regulated in the same way and in the eyes of HM Revenue and Customs (HMRC), they're both investment regulated pension schemes, which means that the basic rules surrounding borrowing, lending and investment are exactly the same for both. 
 
So, does that mean we can forget all about the distinctions between the two? Well, unfortunately no. 
 
Although the underlying tax rules are the same for both, the legislation is applied slightly differently. And while it's true that most new investment regulated pension schemes are set up under the SIPP banner, there are still quite a few SSAS arrangements out there. 
  
Let's have a look at the differences between a SSAS and a SIPP in terms of governance and eligibility.

SSAS 

A SSAS is a small occupational pension scheme that is set up by the directors of a business who want more control over the investment decisions relating to their pensions and in particular, to use their pension plans to invest in the business. As such, each member of the SSAS is usually a trustee.  
 
The following are features of a SSAS: 

• It is an occupational pension scheme.
• The members are usually employees or directors of the sponsoring employer.
• There is no limit on the number of members but, as the name suggests, these schemes tend to be relatively small.
• Each member has a notional share of the SSAS funds including non-insured assets such as property and possibly insured money held in a trustee investment plan.  

SIPP 

A SIPP is a personal pension plan set up by an insurance company or specialist SIPP operator where the member has greater control over the investments. Anyone can take out a SIPP providing they meet the provider's eligibility requirements. These are usually based on a minimum fund size because of the higher costs involved in running a SIPP compared to a standard personal pension. Other features include: 

• It is a personal pension plan. 
• The option to invest in both non-insured assets such as unit trusts and property and insured assets such as a trustee investment plan.
• Member's employer can contribute to the pension plan and may operate payroll deduction on the member's behalf. 

What is the difference in investments for a SSAS and SIPP?

A SSAS has more flexibility than a SIPP when it comes to investment. This is because current legislation allows investments to be made in the sponsoring employer. A SIPP doesn't have a sponsoring employer (although any employer can contribute to it) but a SSAS does. This, therefore, allows the SSAS to invest in the company. Let's have a closer look at the investment differences between a SSAS and a SIPP:

HMRC Pensions Tax Manual - PTM121000: Investments: essential principles

Taxable property 

If either a SSAS or a SIPP directly or indirectly acquires taxable property, an unauthorised payment tax charge will apply. In addition, the scheme administrator will be liable to a scheme sanction charge both on income from the taxable assets and capital gains on their disposal. This effectively means that it's not possible for SIPPs to invest in a company controlled by a member as virtually every purchase made by that company would be an unauthorised payment. 
 
HMRC Pensions Tax Manual - PTM125100: Taxable property: tangible moveable property 

What about trustee duties? 

As far as a SSAS is concerned, the trustees are subject to requirements imposed by the various Pensions Acts. In addition, HMRC treats scheme trustees as 'scheme administrators'. This is quite straightforward as far as SIPPs are concerned - the trustees and scheme administrator of a SIPP is usually the SIPP provider, although some specialist SIPP operators do allow the member to become a joint trustee. 
 
The duties of a trustee/scheme administrator include: 

• Registering with The Pensions Regulator and providing a regular scheme return (unless it's a single person scheme).
• Registering the pension scheme with HMRC.
• SIPP - Operating tax relief on contributions under the relief at source system.
• SSAS - Operating tax relief on contributions under the net pay arrangement.
• Reporting events relating to the scheme and the scheme administrator to HMRC.
• Making returns of information to HMRC.
• Providing information to scheme members, and others, regarding the lump sum allowance/lump sum and death benefit allowance, benefits and transfers.
• Paying certain tax charges. 

Which is the most appropriate arrangement? 

Well, that depends to a large extent on who the members would be and just how much involvement in the running of the scheme they want.  
 
It's fair to say that membership of a SSAS requires a much higher degree of involvement in the administration of the scheme than membership of a SIPP does. Although both arrangements are classed as investment regulated pension schemes and the investment rules surrounding them are effectively the same, there are still some key differences in the practicalities of running them.