How can a SSAS be used to create liquidity for benefit payments?

A Small Self Administered Scheme (SSAS) can be used to create liquidity for benefit payments by notionally reallocating assets of equal value between members. In the example below, part of a commercial property is reallocated to the younger members of the SSAS in exchange for liquid platform investments, giving the retiring members access to funds for their Pension Commencement Lump Sum (PCLS) payments. A similar exercise could be undertaken for payment of death benefits and any Inheritance Tax (IHT) liability relating to the scheme which it is directed to pay in respect of deaths on/after 6 April 2027.

The Clarke family’s current position

The Clarke family run a small, thriving creative agency limited company. Founded by Mr and Mrs Clarke, the board of directors now includes their two daughters, Kathy and Jayne, who run the business day to day. Longer-term, Kathy and Jayne will take over the company, allowing Mr and Mrs Clarke to step-back and enjoy their retirement.

Through working with their financial adviser, Anna, and their accountant over the years, the Clarke family have accumulated a substantial fund within a SSAS. One of the attractions of a SSAS over individual Self Invested Personal Pensions (SIPPs) was its common trust fund structure, which allowed the family to pool their pension resources into shared investments, such as loans to their company and a commercial property purchase.

The business trades from a high-quality, modern office building owned by the SSAS. Rent is paid at the open market rate, is tax-deductible for the company and is received tax-free into the SSAS bank account for investment in line with the adviser’s advice.

What is the SSAS’s common trust fund structure?

Within a SSAS, scheme assets are not normally rigidly tied to one member, but they can be if the trustees all agree unanimously to this. Overall, each member has an allocation of the total fund (a record of each member’s fund value).

This fund allocation between the members should be based entirely on the amount and timing of pension contributions and pension transfers-in for that member plus their respective shares of any investment returns achieved. Because it is a common trust fund, any member of the SSAS can look to any scheme asset to provide their own retirement, or death benefits, and any notional allocations of specific assets to specific members can be adjusted between members by exchanging assets of equal value.

In the context of the Clarke family, the office has been notionally allocated entirely to Mr and Mrs Clarke, simply because they were the only members of the SSAS in its early years and had funded it through employer contributions and pension transfers-in. Kathy and Jayne have subsequently become members of the SSAS and have been so long enough to have accumulated significant fund values of their own within the scheme.

Why can liquidity become a problem in the Clarke’s SSAS?

As Mr and Mrs Clarke approach their retirement, they have become concerned about having enough liquid cash funds available in their SSAS to meet their pension commencement lump sum payments (PCLS) over the next few years.

They have a review meeting with Anna, who reassures them that she has already been planning for this eventuality. Anna reminds them of a discussion they had when the SSAS was first created wherein she outlined one of the key advantages of a SSAS being its common trust fund structure. Anna explains that any member can look to any scheme asset to provide them with retirement and / or death benefits.

In simple terms, Anna states that although a commercial property may be notionally allocated to member A currently, it can be exchanged in full or in part for more liquid assets of the same value for member B.

The solution: a gradual reallocation

A Royal Institution of Chartered Surveyors (RICS) Registered Valuer confirmed the office building’s current open market value at £350,000, notionally split between Mr and Mrs Clarke. The Clarke family’s SSAS also held a platform investment account, managed by Anna, which was valued at £250,000, of which £100,000 was already notionally allocated to Kathy and Jayne.

Anna explains that, because Kathy and Jayne did not yet have £350,000 of benefit entitlement within the scheme, the property could not be notionally reallocated to them from Mr and Mrs Clarke in full, as doing so would shift fund value between members beyond their existing entitlement and trigger tax charges. Anna states that the plan she has in place will enable a gradual reallocation:

• £100,000 of the office building’s value was notionally reallocated from Mr and Mrs Clarke to Kathy and Jayne

• In exchange for that, £100,000 of liquid platform investments were notionally reallocated from Kathy and Jayne to Mr and Mrs Clarke

• Kathy and Jayne would now benefit from a proportionate share of the rental income generated by the property

• Mr and Mrs Clarke now hold some further liquid assets within the SSAS, falling in line with meeting their short-term PCLS needs.

Anna confirmed that a further notional allocation exchange could take place as and when additional funding is available in the SSAS, both gradually building Kathy and Jayne’s share of the property over time, while keeping Mr and Mrs Clarke’s retirement cash flow needs on course.

A summary of the gradual reallocation:

Key takeaways:

• The common trust fund structure of a SSAS means that no member is tied to one specific asset, allowing any member to have the ability to draw on any asset in the

• scheme for their retirement and/or death benefits

• An illiquid asset like commercial property can be exchanged, in full or in part, for more liquid assets of equal value, without needing to sell the property itself

• It is not possible to reallocate to a member more value than their own benefit entitlement supports. Further reallocations may need to happen on a gradual basis when funding permits, just like Kathy and Jayne’s did

• The flexibility shown allowed for the Clarke family to resolve a liquidity problem for one generation while simultaneously building the next generation’s stake in the scheme’s commercial property, without disrupting the company’s occupation of the building.

Frequently Asked Questions (FAQs):

Can a SSAS release cash without selling its property?

The underlying common trust fund structure of a SSAS can make it simpler, quicker and more cost-effective to raise liquidity than might be the case where commercial property is held across individual SIPPs. This can mean that commercial property might not need to be sold in order to make benefit payments (or to cover an Inheritance Tax liability relating to the scheme for deaths on or after 6 April 2027).

How does a SSAS create liquidity for a business?

Unlike a SIPP, a SSAS is permitted to make loans to connected companies which participate in the scheme. SIPPs cannot make loans to connected parties (directly or indirectly). Hence, a SSAS loan to an employer would provide liquid funds to the company, but there are strict HMRC requirements which must be met (including a First Legal Charge security). In addition, if a SSAS buys a commercial property from a connected company (at an open market value), this would also provide liquid funds for the business.

What does 'notionally allocated' mean in a SSAS?

Notional allocation within a SSAS generally refers to the fund / asset split between the members within the scheme. It is required because of the common trust fund nature of the scheme where there is more than one member with benefit entitlement in the scheme. The fund split between the members should be calculated scientifically and it should be based on the pension contributions per member, the pension transfers-in per member and the investment returns achieved. The split of the actual assets within the scheme between the members can be adjusted provided that the split of the fund value between the members is not affected.

How does member pooling help pay benefits?

Pooling of assets within a SSAS can mean that there is flexibility within the scheme overall to ensure that liquid cash is available as and when needed to pay retirement and death benefits, as well as to cover any IHT liability relating to the scheme for deaths on/after 6 April 2027.

Can a commercial property be reallocated to another member in full?

The ability of the SSAS trustees to notionally reallocate an asset from one member to another depends on various factors, including the member’s benefit entitlement within the scheme. For example, a £250,000 commercial property could not be fully reallocated to a member whose benefit entitlement within the scheme was £100,000. Only £100,000 worth of the property could be reallocated until such time as the member has further benefit entitlement within the scheme.

How many members can a SSAS have?

A SSAS can have up to 11 members.

Who can be a Member of a SSAS?

In order to be a member of a SSAS, the individual should be an employee / director or former employee / director of the employer(s) involved in the scheme. This is because a SSAS is an occupational pension scheme created by an employer for selected employees / directors. It is distinct from a SIPP in this respect because a SIPP is a personal pension scheme and does not require an employer’s involvement.

Dentons Pensions does not provide regulated financial advice. We only provide factual information on our own Dentons’ SIPP or SSAS products and the services we offer here at Dentons. We strongly advocate that clients obtain sound, regulated financial and/or investment advice regarding the suitability of a SIPP, SSAS or any investment.