Is it time to alter the requirement for all SSAS members to be trustees in order to be exempt from the Maxwellian protections of Pensions Act 1995?
This seems an odd question, given the battle against liberation, but recently I have been asking that question in response to a particular phenomenon that I am starting to see in SSASs.
Since 2006, SSASs have been able to carry on with members beyond age 75 who haven't wanted to cash in and buy an annuity to secure their financial future. Initially, the way to do that was Alternatively Secured Pension. Then, in 2011, that was done away with in favour of the more generous harmonised income drawdown rules and in 2013 these became even more improved.
Legislation is certainly favouring those over age 75 to be able to continue to invest their funds and even with the freeing up of income drawdown, we can expect those over 75 to continue to have funds invested in pensions. This introduces an age old problem – what happens when the member is incapable of making investment and other pension-related decisions?
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For most pension arrangements, the member doesn't have to be a trustee and so can delegate decisions to A N Other (whether their adviser or a member of their family). This is a fairly simple process. But in a SSAS - and some trust-based SIPPs - the member has to be a trustee. This is important if the SSAS is to avoid Pension Act consequences such as the need for audited accounts and a restriction on investments involving the employer (such as loanbacks and leasebacks).
There are a few strategies to navigate around this whilst still meeting the requirement for the member being a trustee, but I wonder whether a change is needed as this could become a more common issue. Relying on a power of attorney isn't an elegant solution.
The member trustee requirement is there to protect members by having them sit on the trustee board and so you might reasonably argue that if someone is too incapacitated to be on the trustee board, then it is right that the Pensions Act protections should come into play. But this isn't that convenient if there is an existing loanback, say, and the incapacitated member has only a few years left.
My simple suggestion, therefore, is that trusteeship may be delegated to a connected party with the consent of both the member doing the delegation and all of the other trustees. In other words, all members or their appointed representatives must be trustees to keep the various exemptions from Pensions Act legislation.
With an ageing population of drawdowners, there is also likely to be an increasing number of dependant's drawdown funds. This introduces another point, which is the anomaly between a member with a drawdown fund having to remain as a trustee for life, whereas a dependant with a dependant's drawdown fund does not have to be a trustee, even though the same amount of pension saving could be at risk.
And so if the legislation giving exemptions to small schemes where all members are trustees is being reviewed, it is probably worth amending it to require that dependants or their appointed representatives must also be trustees.
Andrew Roberts, Partner, Barnett Waddingham LLP
@andrewddroberts
Andrew Roberts' Blog: Time for change to SSAS rules?
