The Return of the Pensioneer Trustee
A colleague was telling me the other day about how he had been doing a bit of car maintenance. He topped up the water, changed the oil, pumped up the tyres and changed the brake pads.
It was only when he took his car to the garage several months later that he learned he had put the brake pads on the wrong way round!
It was pretty funny at the time, and no road users were harmed in the course of this mechanical misadventure, but there could have been serious consequences from his ill-advised and overambitious tinkering.
This is not completely unlike running your own Small Self-Administered Scheme (or SSAS).
A SSAS is a small occupational pension scheme and is often used by directors and key employees of small and medium sized businesses.
The ‘self-administered’ part of the name is perhaps a bit misleading as there may be a professional individual or firm acting as the administrator and as a trustee. They are often referred to as a ‘pensioneer trustee’. Alternatively, there may be a third-party administration firm involved. Either will help keep the scheme on the right side of Her Majesty’s Revenue & Customs (HMRC).
Historically, it was a legal requirement to have a pensioneer trustee, but this fell away at ‘A-Day’ in 2006. A sizeable number of professional trustees chose this moment to resign their positions, leaving many SSASs without professional assistance. And for any schemes set up from that date, the individuals were able to operate their own schemes entirely by themselves.
A SSAS is a fantastic tool for retirement and business planning, and it can often be a lot more flexible than other types of pension arrangement.
But it can also be a lot more complex than other types of pension arrangement, and while running your own scheme might seem like a good way to save on costs, you can easily end up steering off the road.
Over the years, we have heard several car crash stories about self-run SSASs. Here is a small selection.
One particular individual wanted to invest several hundred thousand pounds into some authorised collectives and a handful of listed shares. All above board so far. However, to do this he transferred the funds from the SSAS cash account into his own personal dealing account.
While in his mind the funds were still part of his SSAS, technically he had made an unauthorised withdrawal, and one simple transaction landed him with some hefty unauthorised payment tax charges.
Another individual purchased land in the South of France. While it’s unusual to purchase overseas land given the complexities of dealing with foreign legal systems, it is not against the pensions tax rules to do so.
However, he then built a house on the land with a view to living in it himself. This fell foul of both the residential property rules and the personal enjoyment rules. Again, an unfriendly letter from HMRC landed on his doormat.
In a different story, an individual used his SSAS to lend money to the sponsoring employer (his own company). This is a perfectly normal thing to do in a SSAS. Unfortunately, the funds were lent on an unsecured basis, which is against the rules, and the mistake was compounded when the employer went bust soon after. In one fell swoop, he had lost both his business and his pension.
In retrospect, all these individuals could have benefitted from the handbrake of a professional trustee.
The freedom to operate without one also seems pretty anomalous when you consider the various levels of protection that are being built into the retail system, ranging from Pensions Wise to FCA-mandated risk warnings and soon to the proposed advice allowance. Yet none of this helps an ill-informed if well-meaning SSAS member.
The solution to this conundrum? A return of the mandatory pensioneer trustee - someone who will actually look under the bonnet rather than just kick the tyres.