Contributing your SSAS is an extremely tax-efficient way of funding your pension from your company.
Contributions qualify for corporation tax relief and are not subject to Income Tax or National Insurance.
The company can contribute up to the Annual Allowance for every member of the scheme.
The maximum amount a member may accumulate is also subject to the Lifetime Allowance.
There are also other ways of contributing to a SSAS such as assets in-specie and transfer of current pension pots. Specialist advice should be taken to check that these don’t affect the below before being moved in.
The Lifetime Allowance
This is the value of pension plans a member can crystallise before potentially incurring tax charges. Benefits crystallised above the Lifetime Allowance generally incur tax charges. The Lifetime Allowance is currently a maximum of £1,073,100 across all pensions. Any excess pension savings over this amount may be charged to tax of 55% on lump sums or 25% of income drawn.
If you are approaching this limit it is essential to speak to a pensions specialist as they may be able to utilise some reliefs to help.
The Annual Allowance includes all of a member’s pension contributions. Contributions to other pension arrangements need to be deducted from the Annual Allowance to calculate the maximum allowable contribution to the SSAS.
Currently, the Annual Allowance is £40,000.
If you have unused contributions from the last three tax years these can be carried forwards and used in the current tax year too. After three years these are lost.
Higher earners need to be aware of changes from 6 April 2020. The amount they can invest in a pension and on which they receive tax relief may be as little as £4,000. This includes company contributions to a SSAS, or any other pensions, on their behalf. Earners are affected if their income is more than £240,000, although those with lower incomes could also be caught. There are two definitions of income. These are Adjusted Income and Threshold Income. Adjusted Income includes all taxable income (e.g. salary, bonus, BIK, self-employed earnings, pension income and investment income such as dividends, rent and interest) PLUS pension contributions. Threshold Income includes all taxable income as above but NOT pension contributions (unless paid under a salary sacrifice arrangement where an employee deliberately receives a lower income in exchange for pension contributions).
Where Adjusted Income is £240,000 or more AND Threshold Income is over £200,000 then the Annual Allowance reduces. This means that when Adjusted Income reaches £300,000, the Annual Allowance reduces to £4,000. The Annual Allowance is £4,000 thereafter.
Please note that if you take income from your pension (excluding tax-free cash), other than via any relevant Capped Drawdown limits, your Annual Allowance will reduce to £4,000 regardless of earnings.