SIPP vs SSAS Pensions: 10 Key Differences

Transcript

Unknown Speaker  0:01  

The purpose of wealth talk is to educate, inform, and hopefully entertain you on the subject of building your wealth. Wealth builders recommends you should always take independent financial tax or legal advice before making any decisions around your finances.

Unknown Speaker  0:19  

Welcome to Episode 133 of wealth talk. My name is Christian Rodwell, the membership director for wealth builders. And I'm joined today by our founder, Mr. Kevin Whelan. Hello, Kevin Cruz, good to be with you again today. Yeah, I think this might be our final episode of 2021.

Unknown Speaker  0:35  

Wow, in 2022 rolling on very quickly, isn't it and it's a perfect time to be reflecting on things, isn't it? And also, I suppose we all get in a comfort zone somewhere in our life, don't we, and life wants to keep bringing us back to that. But you know, we want to keep raising challenges for people and hope that, you know, as people get thinking, ready, enjoy the festivities, whatever that means to you, and get ready for 2022. We want to come out with a bang, particularly start talking about our wealth builders for families and bringing children into the equation and teaching parents to be better teachers, which means to be a better teacher, you need to be better educated in the world of how to build, how to protect your wealth, and then how to pass it on with all the skills. So that's to come. But but this one, this episode is a long one. So we'll keep the intros short, Chris, because probably, you know, when you get a question that you get all the time, you know, when somebody says if I had a pound every time somebody asked me that question, you know, I'd be I'd be rich. Well, this is the question I get asked, not quite every day, but several times a week. And I got not quite fed up with answering the question, because when you get asked the question, which is, Kevin, what's the difference between sip and SAS, you know, awkward language, self invested personal pension, SAS small self administered scheme. They're not sexy titles, no marketing prizes. No BRIT Awards for that. What you get is just boring pensions. But pensions are the mainstay, and so tax efficient, forgive the terrible titles, think about compounding exponentially tax free. And there's a huge difference between the CIP which is probably 50 times bigger in terms of numbers in the UK than the SAS. And and I'm going to put right a myth that there are some myths purported, often by those who sell sips, that they're better. And I just want to put that case that there are 10 key differences. And I've enlisted the help of co director Paul Brooks, you know, who runs the SAS program? For he and I to have a really, really good dialogue? I think it's about 4550 minutes Christopher member, you know, didn't get you, you know, I get on my soapbox. I don't care how long it takes. If the message is worth giving, it's worth spending time on. So bear with us guys. You know, it's a longer one. But if it's something that's important to you, you know, you you've thought about it, you've heard somebody say the word CEP and somebody say that word SAS and you think they're the same? They're not the same. They're completely different are some parallels like, you know, what's the difference between a hatchback and a Formula One, you know, the same on they've got four wheels, and they go, but they're not the same. You know, one of them is infinitely more powerful than the other. And you need a bit of tuition on how to drive it, which is really what a SAS is. But anyway, rather than steal the thunder of the work, Paul and I put in, maybe that's probably a good one to end the year because it's such a powerful subject. And maybe, for those people who are curious to find out a bit more, they could reach out to us, Chris, and then you know, we can help some people discover the differences for themselves. And you know, we can deal with SIP or SAS. And for some people SIP is right, for some people SAS is right, but not in the same proportions as 50 to one, it's probably two to one, you know, more people should be doing services than they are and I want to get this message out. And I make no apology for it.

Unknown Speaker  4:39  

Yeah, no, it's, it's a good one. And why don't we pull out one final Trustpilot review just before we head on to that conversation with you and Paul, and it's from one of our members, James Clark, actually, he's referring to SAS so quite appropriate to to have today. So James says having set up a SAS analytic company in 2019 for managers In serviced accommodation and holiday let's I drifted around investment opportunities with the SAS before joining wealth builders in January 2021. And the focus and clarity plus the support from the wealth builders community have provided invaluable in using a loan back to help grow the business and to attract investors. It's an exciting three to five year journey that we are on and I look forward to working with wealth builders in the years ahead.

Unknown Speaker  5:27  

Do you go invaluable? I mean, that's a word I like to hear invaluable. And, you know, and again, that consistency of clarity and support, connection, and a feeling of confidence that people get when they feel they're in a trusted environment. You know, they're not learning things that could cause them to fall down a big crevasse of a lack of knowledge. We just surround ourselves don't request with brilliant who's because at the end of a how question, how do I do this? How do I do that? There's always a brilliant who knows the answer. And fortunately, were in that position where we built up an incredible list of very solid, very powerful, very trustworthy, who's, and we're willing to share those inside our community. So well done to James, thanks for choosing us. And hopefully, you know, your journey will be an exciting one.

Unknown Speaker  6:20  

Yeah. So thanks, again, everyone for tuning in and listening. And for all of your kind words again this year. Kevin, thank you for your support with the podcast and everything else this year, we could

Unknown Speaker  6:30  

ask for one thing, you know, Christmas time, there's normally a time of giving a gift. So give gift of telling somebody else about podcasts, right, we put a lot of time and energy and our commitment to be consistent every single week. We put our we put our wholesales on the line here we obsess about this. So if you enjoy it, just do one of two things a small gifts all I ask of you not not more than one minute of your time, given the number of hours we put in, could you do this? Could you tell somebody else Hey, I got this podcast I really like it gives me some clarity gives me some challenges to think about. And we all know how important it is to become financially independent in a very troubled and uncertain world. Or number two, could you tell us what you like, you know, like James did there, you know, a little review that just says, really enjoying the podcast, guys keep it up anything like that. Just so we know. We're not talking to an image just just like a blank canvas and an audience that we don't know is really enjoying it. So I know, you're probably thinking, well, somebody else is doing it and somebody else will leave the review. I'm asking you take a moment, one minute tell somebody else or tell me and I'd be very grateful for that with that, Chris. We're not going to do a debrief of the podcast of the is too long. But I would like to sign off wish you a very merry Christmas And to all our listeners have a fantastic Christmas and absolutely brilliantly wealthy 2022

Unknown Speaker  8:01  

Okay, here we go set versus SAS pensions. 10 key differences.

Unknown Speaker  8:08  

Hello, good evening, and welcome to this educational piece. Between myself Kevin Whelan, founder of wealth builders, and the SAS Director of Wealth builders, Mr. Paul Brooks. Good evening, Paul. Good evening, everyone. Listen, Paul, we get asked loads of questions, don't we on our wealth building journey. And we're going to talk tonight, really about one of the questions we get asked more than anything else, unless you're the director of SAS for wealth builders, you know, we're obviously going to touch on that. But I suppose more than any other question, Paul, there's one question we probably get asked more than any other, isn't it? Yeah, that's right. And it's this, this really common question of the main differences between a sip and the sense, where it's a big, big set of questions. And there's not just one, I mean, you think you've outlined here, there are 10 key differences and probably more. So we don't want to get people too bogged down. In the minutiae of details of lots of things. We could talk about three, but I suppose you know, the key differences, you know, obviously, there's a language difference sips self invested personal pension and SAS small self administered scheme. They both kind of hint don't they? Self, you know, there's a common word and that therefore, if it's about self then it means me. So therefore, I must be in control. Right? So seven assess probably the same. Well, you'd think but of course, there are some some pretty big differences and we'll touch on all of the key differences tonight and and hopefully really give people have good solid understanding of the main differences and why they're a different vehicle. Okay, and of course, we can then also patch touch on as you as you mentioned, I think a little while ago, just thinking about, you know, who's eligible for what? And we can have a little bit at the end where we talk about Okay. Yeah. Okay. Cool. So Paul, let's, let's go straight for the jugular. What's number one? investment choice, God got to be the same, right? So self investment, does what it says on the tin, got to be able to choose my own investments and ACIP got to be able to choose my investments in the South Pole come on copy the same? Well, sadly, no, not quite the same. sense really has the widest choice of investment, that's possible. And that's for a few reasons. But fundamentally, it's because you this owner operator in the driving seat. And when you're in the driving seat, you're completely in control of how and where you invest your money. Within the rules, of course, but it allows you the complete freedom to invest wherever you choose. Right now. That sounds good. It is, it's fantastic. You know, it's a real entrepreneurial pension vehicle allows you to do a huge range of different things, and you know, is a hugely powerful tool for business owners, for sure. But SIP is different for a couple of reasons. And, again, it comes down to control but it's because we're the CIP the pension owner is never in control. The control is actually with the company that runs the pension, the professional trustee company. And that means that they set the list of things that can or can't be done, not based on what the law allows, necessarily, but based on what they feel comfortable with. Okay, so, okay, I'm think I'm getting that. So bit like, if the menu of what I can do with the SAS is just whatever the law allows pensions to do. And a SIP is whatever the SIP trustee, the professional company who operate that allow? Yeah, that's right. That's a difference in investment, then what's the difference? Well, so with with a set, there are, I suppose two main categories that most IPs are now, right. One is stock market based investments, right? So collective funds and shares and you know, a huge variation of different stock market based things. And some tips will also allow you to go out and buy commercial property, right, which can be good if you're a business owner, and you want to buy your own premises potentially, or if you're looking to buy commercial premises and rent to a third party business, somebody else's business,

Unknown Speaker  13:07  

right. So what don't they allow them if they allow, give me what it says, owner might want to do. But, you know, can't do in a couple of? Well, the single biggest thing that a SIP can't do that a SAS can do is something that we refer to as borrowing but pension rules call a slide back. Which in really simple terms, is the ability for a business owner to actually borrow some of the money from this as a commercial at that point, and access I think a little bit later on. Yeah, so. But what about the investment choice that I could make? You know, can i Is there some things that simple let me buy that assess, rather than somewhere? Sasebo? Let me buy a sip. Wouldn't let me buy so can I buy a property and turn it into residential and a sip? No, no, that's not really allowable now, because most set trustees aren't really comfortable with letting people do that. Right. Okay, can I can I lend to a third party with a set? Occasionally, very occasionally, yes, it is possible but it's much much more tricky. And and there are a whole list of ticks in a box that have to be fulfilled which mean actually in the real world, it's actually it's quite difficult to do the set. Okay. So so in summary then, because we've got a lot to get through anything, a SIP can do. A SAS can do. Yes, absolutely. But anything a SAS can do. Probably can't be done in a SIP unless it buying stocks and maybe basically, in simple terms, in simple terms, yes. Right. Okay. Okay. So given that many people like property, why don't we talk about the different things then other than commercial property, which both can do? What are the other things that clients in sasses want to do? And realize that only a SAS will let them do that? Give me some examples of that? Well, a great example is commercial developments. And I guess you could say there are broadly two types. So the first would be Commercial to Residential developments. And the second would be commercial to commercial developments, you know, taking one kind of commercial property and turning it into another type of commercial property. Right? So is it the development angle, which gives the greater potential to make money, but the CIP doesn't allow that. Guess, again, set trustees are, are always, you know, have almost pre judged that they feel that he's too risky, there are too many areas that, you know, could could lead to an issue. And rather than allow the person who owns the SAS to use their skill and their experience and their connections, to navigate through those, they would rather just say, we're going to do a job of protecting you. And we're just simply not going to allow you to do it. Okay, that's interesting, isn't it. So then, if with the purpose of us of a pension vehicle is to help towards our wealth, but we learn more and develop our skills, to be able to get a better return on our investment. The SAS will let us demonstrate our own skill and expertise to sit will limit us to what somebody else believes is safe. Yeah, that's that's kind of quite spectacularly different, isn't it? It is, it's hugely different. You know, it's really the difference between being in the driving seat of a vehicle and in the passenger seat, actually. Yeah, I think I know what I'd like. Anyway, moving on, from what I'd like because I'm a control freak. I want to be. But okay, well, you know, what's the next one, then, Paul, you know, there's got to be another area where there's something else to compare. So should we touch on stock market and funds quickly? On stock market in funds? Obviously, you know, we're going through troubled times right now, but in a well diversified portfolio, having some stock market, or buying directly equities buying shares and companies you like, pretty, pretty useful to have. And I'm, I'm assuming Sipan, SAS both can do that. Yeah, absolutely. Yeah. I mean, you you could argue, you know, the stock market and funds is the bread and butter of the pension world.

Unknown Speaker  18:04  

What's the difference between the two here then? Well, I guess the big difference is choice. Again, with this, you can create sort of a broking platform, almost like a home for those funds to sit inside, with any company you wish. And there are lots of different platform providers, which gives you an enormous amount of choice to be able to control your costs. And it also gives you an enormous amount of choice about the different types of funds you might want to take. And in particular, low cost fund options. But sometimes sometimes known as tracker funds or index linked funds. And another type of it's kind of like a fund is called an ETF, an exchange traded fund, which is a very, very low cost bundle of shares wrapped up in a neat package that you can you can buy and get access to for a very low ongoing costs.

Unknown Speaker  19:06  

So okay, so I think what you're saying, and I think you've an index tracker rather than index linked,

Unknown Speaker  19:13  

I did indeed, you're right. Yes. That's okay. I speak your language. Paul, we're on the right. Thank you. Yeah, but the the issue seems to mean then, as a sip, I've got to buy kind of conventional funds, almost like a retail customer. And as a SaaS business owner. I'm always I've got more choice about how I access funds. So I could potentially buy those funds at a much lower price and therefore almost like be a hole by wholesale. Sure. Yeah. There's a huge amount of additional choice. Specifically if you're using a sort of a sophisticated sophisticated banking platform which might only be available, you know, in in rapid because or In essence vehicle, because you can't necessarily take sick platform from that provider, right? So I've got more choice, I can drive my costs down. And can I invest in stocks and shares where I can hedge my bets, you know, I can put in stop losses I can put on risk mitigation techniques, is that something I can do with both or just one, it's generally really something that needs, you know, a more sophisticated platform, and those more sophisticated platforms are only really can work within a sense. Okay. So hence, then conventional funds, conventional commercial property, is the domain pretty much except if you want more than that, SAS is going to let you do that. Sure. But this all sounds like, you know, maybe I'm taking more risk, Paul, you know, so why would I want to have a pension that gives me more risk? Or is it the risk the same? The risk is really the same, because if you think about the ACIP witnesses, they're just vehicles. And with with one exception, the risk that you take when you get into a vehicle comes down to the driver of the vehicle. And so if you've got a skilled, well educated, well trained driver of a SAS is absolutely no more risk. In fact, you'd argue, at least the same if not less risk than someone who takes a set. Yeah, yeah. Okay. That's a good analogy. I like that. So, I mean, it reminds me of what Warren Buffett said, You know, Paul, which is risk is when you don't know what you are doing. So the risk is you. So when people say a SAS is more risky, it's not true. It's just are you more risky? Exactly. Right. Exactly. And like with most things, there are lots of ways you can mitigate risk. And one of those ways is education, of course. Yes, and I definitely know that number of SAS clients are putting in risk mitigation, learning how to risk mitigate, and learning things like options and how to trade and those sorts of things. Okay. What about other investments that you could choose Paul? So be moving on to maybe number four? Yeah. So like, Okay, so let's see five fancy something. I quite fancy peer to peer, I want to I want to put some money in a crowdfunding platform. perfectly doable, within a sense, because again, remember, you're the driver of the vehicle, you're in control of the strategy. And assuming the the vehicle is set up in the right way, you've got the complete scope to do whatever you want, choose whatever platform you want. And of course, there are lots of reputable platforms to choose from. In a sip, again, much more challenging, because the regulation of sip, professional trustees means that they're all super nervous about allowing people to do things where they feel there is a level of risk that can't be controlled. And so they prejudge the outcome. And they prejudge that it's too risky. Yeah, I'm getting the sense then that because the CIP trustee is I mean, they've got capital adequacy issues, haven't they? So every time of peace, another investment, which is called as a special name for isn't there when you when you choose an investment, which is not kind of on there? On the regulated list? No mainstream investment, non mainstream investment? Okay. So if I want to go off piece, which is not mainstream, that SAS will help me so peer to peer? What about if I want to buy shares in my company, I want to help my company grow, can I buy shares my own company? You certainly can. Can I buy shares in my company in a sense, and used to be possible, again, much more difficult now? Okay, it's possible, but it's much more tricky and likely to be much more costly to do as well.

Unknown Speaker  24:23  

Because we need to come back to cost because a lot of people have a pre judgment of cost, don't they? Anyway, I do. Often as say, SAS is more expensive than in many cases it isn't. Can you think of a an investment that, you know, some of the SAS clients we know have bought into that you definitely cannot do in a SIP just to bring that more to life? Let me think. Well, I guess it tends to be the more sophisticated commercial property investments that are more sophisticated strategies. where you're struggling to do that in the CIP, remembering that there are only really four main investment strategies that can be used, you know, borrowing your own money we've already touched on, we're going to spend a bit more time thinking about it in a minute. That's exclusive to SATs, you know, bridging lending to third parties. We touched on that and said, much more difficult in a SEP, almost nearly impossible nowadays, whereas in a SAS perfectly, it doable and achievable. You've got purchasing commercial property to own as a landlord. And then you've got, and the development, which of course, again, you just touched on. And then finally, you've got the stock market funds and equities and all those financial instruments. So one of the ways that many clients will seek to improve themselves, to develop their knowledge to develop their skill, so they can improve their ultimate return on investment is to lend and learn, for example, you know, so they become a bank, and they use their money in that bridging capacity you mentioned, is there any fundamental difference in that, you know, Is that doable in one and not in another? In general terms, I mean, in general terms, again, you know, whether it's a lender learn where you're being able to leverage the power of, you know, getting a great return and some education, or it's just a straightforward return on your investment with, you know, with an interest rate, the general principle is lending is much more tough in a set for all those, you know, pre predetermined reasons that the SEC trustee has, what can and can't be done. So I think across the board, whether you're lending and learning, or whether you just straightforward lending with a great return, the challenge is always going to be much, much bigger with a CIP. And it's easier when you're the bank and you're in control of the lending scenario, to be able to get extra eyes on your money in lending learning is therefore much more achievable in a SAS because you're in charge of the negotiation with the borrower. And it means you can have a dialogue and a discussion and agree that returns a set trustee really, just by and large, once ticks in boxes. And you know, they're not really interested in the more sophisticated side of the investment. But Paul, you know, I like restaurants a lot. Obviously, I'm suffering right now. So basically, a SIP is like, maybe you're too coarse menu, you know, like a pre theatre menu. And that's like an ala carte, or a tasting menu, maybe those four, let's move on to the next one, what we got next? So next up, we've got collaboration and joint ventures. Well, that's a mouthful. So let's talk about collaboration in terms of who you can work with as you create the vehicle and talk in general terms. What what are the what are the differences in self invested personal pension? Sounds like it's for one. But Assassin has got a bit more scope? Can you? Can you elaborate on that? Sure. Yeah,

Unknown Speaker  28:24  

absolutely. So you're right, a CP is really a singular vehicle for one person, right? Whereas a second Caesar is a much more friendly accommodating vehicle for multiple people, multiple trustees coming together. And actually, they are giving an example of so right isn't an obvious example, would be spouses coming together to pull their pensions, or to take profit from their businesses, and then investing together as one SAS. But they've effectively collaborated. And that's, I guess, what we would call internal collaboration, right? The same would be business partners, pooling their pensions together, and then, you know, going out and investing together as one or both site being in business together in their pensions. Well, yeah, many respects. A South is a business pension, isn't it? It reflects your business. Whereas a SEP interests me the way you've described a poll, it seems to reflect somebody else's business. But well, that's a great a great, actually, a great example of how it works really, you know, it's you're almost borrowing a vehicle with a CIP that isn't yours for the duration of your retirement. Whereas with the sounds, you're creating your own vehicle, right. So how many people can you have together? I mean, husband and wife sounds easy. Siblings, families, whole families, yet you can you can really have. It's down to you as the trustee of your own SAS to invite people in There is a maximum limit you you can have only I think only you can have up to 11 people 11 trustees in the States, but that's a big family in them. It's a pretty big family. And actually, it's a pretty big business because most of the people that joined us and so the other owners and the directors or the immediate family of those people, generally speaking, yeah, okay. So okay, well, that's interesting. So more money pulled together, I guess means, therefore, you've got a bigger pot to make different investments. And the more money you've got usually, the more choice you've got, because you can use money and diversify easier as well. And and the more money you've got, if you're using leverage, do you want to just touch on leverage? For sure? Yeah. What can you do? What can you do and assess for leveraging? What can you do on a CIP for leverage? So the rules are the same, whether it's CIP or SAS, all pensions have the ability to take leverage. And there is a maximum limit, which is 50% of the value of the pension. Right. So whether you've got one person in SAS or 10, the total amount of leverage is capped at 50% of the value of the pot, there's no pounds and pence restriction. It is as simple as if you have a million pound SAS, you could find up to half a million pounds worth of leverage. Okay. So let pause for a second. And let me just think about that. So if I've got, I mean, most people don't have a million right. So let's, let's, if we say, most SAS owners have around three 400 grand, so let's say it's a nice round number, or the 1000 quid, but I can get leveraged to 600,000. Borrowing 200 We have more bang for my buck there, Abner. Yeah, absolutely. I mean, the tax man is giving me a tax free return that I can control an asset worth 600 But only have 400 of my own. That's absolutely right. Okay, that's a bit busy. It is it's I mean, it's a huge boost to your wealth building plan in your pension? That's for sure. Mine, in the same way using leverage? Yeah, we all need a boost given stock markets can take away if you can get back by leverage and use that money. You're protecting yourself a little as well on you against downside risk, because that's money you don't have and legitimately get it. Okay, what about joint ventures in the sense of external collaboration? So a sense again, I said a little while ago is a friendly vehicle, you know, it really is perfectly possible to to JV, your SAS with any other SAS any other business, and actually even your own business, if you wanted to write so you can pull the sun's resources and your money in a business or somebody else's science or business and come together to collectively invest. And so again, there's that boost to the purchasing power and the returns that you can get where you're pulling sums of money to give you a bigger capital pot.