SSAS market- outright ban or just fix what is broken?

Despite living in a world of plenty, there are still times when were we are faced with a genuine lack of alternatives, writes Lee Halpin, technical manager for @SIPP. 

As an example, try listening to the current official UK top 10 singles. Unless you are a big Ed Sheeran fan, chances are you will be disappointed. No less than 9 positions currently earn royalties for Mr Sheeran so, if you hope to listen to eclectic mix of current musical talent this is not the place to look.

This lack of choice, does not suggest a competitive market working for the ultimate benefit of the consumer, irrespective of whether it is the music or financial services industry.

A similar approach was instigated by a recent call from the Pension Regulator (TPR) for an outright ban on pension transfers to SSAS (Small Self-Administered Schemes) arrangements. My first reaction was, given a culture of widespread disengagement, surely all forms and shapes of retirement saving should be encouraged rather than removing any option.

As advisers know, SSASs are particularly attractive to business owners due to their unique- and hugely tax efficient- business capital raising features, as well as being an ideal means of business succession planning. Properly run SSASs can provide excellent long term pensions vehicles for many small businesses.

The TPR’s calls are of course well intended with one of the three measures proposed to eradicate pension scamming. Recent research by the Money Advice Service suggests there could be as many as 8 scam calls every second, whilst reports of suspected pension liberation fraud have doubled in 2015/16 compared to 2014/15.

But the timing of TPR’s proposals were not coincidental; issued the day before a joint consultation by HM Treasury and the Department of Work and Pensions closed. The consultation sought views across three areas: a ban on cold calling in relation to pensions, limiting the statutory right to transfer and making it harder for fraudsters to open small pension schemes. Clearly, TPR thinks small pension schemes are just too risky altogether.

However, should SSASs be consigned to extinction, on the grounds of pension scams? I would imagine this would be contentious within the adviser community. I would certainly question advisers losing a fit-for-purpose solution for their entrepreneurial clients because individuals decided to proceed without advice, and ended up in a situation which any adviser would have warned them to avoid.

But it is fair to ask why SSAS schemes seem to have become the vehicle of choice for pension scammers? Compared to other types of pensions, SSASs have minimal legal and reporting requirements. And unbelievably, in 2006, rather than moving requirements forward, the requirement to have an Inland Revenue recognised, professional pensioneer trustee was abolished.

Compare this to the (ever increasing) regulation experienced by SIPP Operators. The Financial Services Authority first began regulating SIPPs in 2007. From the outset this required explicit approval from the regulator for individuals to undertake controlled functions. And the bar continued to be raised by its successor, the Financial Conduct Authority, with three separate thematic reviews in just a decade of regulation and a not insignificant increase in capital reserves introduced from last September.

It might come as a surprise that TPR does not know exactly how many SSASs exist. But this is simply because there is no requirement for a single-member SSAS to be registered with the regulator. However, the government’s consultation suggests there be as many as 750,000 one-member SSASs. By comparison, 21,000 SSASs (those with two or more members) were registered at the end of last year – equating to a paltry 3% of all SSASs.

In somewhat of an understatement, the Pension Regulator’s admits “the theft of consumers’ pension savings has proved hard to prevent under the current legislative and regulatory framework”.

So rather than jumping out of the frying pan and into the fire, would it not be more prudent to fix what is broken? And instead create a fit-for-purpose, robust legislative and regulatory framework. The reinstatement of the professional pensioneer trustee would be an ideal starting point along with bringing SSASs into the sphere of FCA regulation.

Also, the next time the TPR is minded to put pension scams in the spotlight, the opportunity to promote of the value of advice where faced with a too good to be true offer should not be discounted.

At least this way, advisers can keep the SSAS option for clients where this would be the most suitable solution. Which, to me, sounds like how a proper functioning market should operate.

Lee Halpin, @SIPP technical manager Lee Halpin, technical manager

A leading member of the @sipp management team since 2006, Lee provides product advice, technical guidance and expert support on pension matters, both to internal stakeholders and external business partners. Lee has developed a particular expertise in investment permissibility ensuring proposed assets comply with business requirements as well as fiscal and regulatory requirements. Lee is currently pursuing his formal CII qualifications.