The tax benefits arising from Irish pensions legislation are one of the most liberal in Europe. There are significant tax savings to be had by investing in the correct retirement structure. In this article we have identified 8 key reasons why a Small Self-Administered Pension or SSAP can help you maximise these benefits.
Who can open a SSAP? It is a company pension so it available to you if you are a company directors or an employee of a company with the agreement of your employer.
Who are they suitable for? A SSAP can be an ideal solution but if you have less than €300,000 in retirement savings you should not be looking at this option as it can be expensive unless you have an ability to make significant contributions to get you this level relatively quickly .
How much does it cost? It is a pre-condition of Revenue approval that at all times the scheme must have a Revenue approved Pensioneer Trustee. Fees can vary and typically they charge an annual fixed fee which can be as low as €2,000 per annum for trustee and administration services but it will depend on the complexity involved. There may also be setup charges which vary from provider.
Why may a SSAP be for me?
- Investment Options
You can invest in a wider list of investments compared to alternative pension structures including property, cash, alternative investments, loan notes, equities, bonds and gold.
You cannot invest in a property you or a connected party own personally, and you cannot buy a property and lease it back to your company which is something you can do in the UK. Typically, this structure works for the DIYer who likes to be hands on.
The SSAP offers a totally transparent structure for your pension funds. Alternative pension structures can be complex to compare with allocation rates, bid /offer spread, initial units, management charge rebates etc.
You also receive an annual set of accounts which set out where the assets are invested and what was contributed in the year.
- Tax deductible charges
Under the traditional pension, charges, commission payments and the annual management fees are deducted from the fund whilst under a fee-based structure such as the SSAP the fee can be charged separately to the limited company as an allowable expense for corporation tax, without impacting on the pension fund.
Changes in the Finance Act of 2001 allowed one-man SSAPs avail of non-recourse gearing from within the SSAP. This means that the asset class of property is a real option for clients as the SSAP can borrow up to 75% of the property value, on a non-recourse basis which allows you to identify specific properties to hold in your pension portfolio. All rent flows into the trust are tax free pre-retirement and allows these funds to pay down debt quickly over time.
- Charging structure
For balances greater than €300,000 the SSAP can be the most competitive charging structure available on the market,The SSAP is effectively a tax-exempt bank account, from which you can decide what assets you wish to purchase e.g. invest directly in property, shares, deposits etc.
The SSAP allows you to take full control of the investment choices for the pension portfolio and is suitable for individuals that want to make these key decisions or work with a financial adviser.
- Wealth Extraction
If you are a small to medium sized business owner SSAPs can be used to extract significant wealth over time from your company in a tax effective manner.
- Defence Mechanism
Your pension trust can never be attacked by creditors should your company see hard times, as we witnessed in 2008.
In summary SSAPs for eligible individuals allow you to maximise the benefits of pension planning and offers a broad range of investment choices, control and transparent fees.
Author: Barry MacDonald CFP TEP, Pensioneer Trustee, Trust & Estate Practitioner, MacDonald Trustees, www.macdonaldfinancial.ie