SSAS – In need of a home
It’s fair to say that Small Self-Administered Schemes (SSASs) have had a rough time of it recently.
One senior industry figure referred to them as "effectively unregulated products", and another floated the idea of banning new ones altogether. There are hurdles on the horizon like the master trust regulations and Legal Entity Identifiers (LEIs). And of course we have seen scammers using SSASs as their vehicle of choice, as a result of which HMRC now take several months to register new schemes.
The first SSASs were set up at the tail end of the 1970s. But despite its age, the SSAS is still an innovative and entrepreneurial product. Acquisition continues across the SSAS industry, new enquiries are coming in and business is on the rise.
To those in the SSAS market, this is not a surprise. They have all the benefits and investment flexibility of a SIPP. The pooling of members’ funds means a SSAS can contemplate large commercial property purchases, such as those belonging to the sponsoring employer. And they also offer the facility to make a loan from the SSAS funds back to the sponsoring employer.
At a time when conventional sources of capital are drying up, and with alternative funding sources still working to demonstrate a consistent track record, this is a great cash-flow opportunity for small and medium-sized businesses.
However, if senior figures at TPAS, TPR and HMRC have growing concerns, where does the SSAS go from here? More specifically, where does it fit into the regulatory framework? And how could this work in practice?
Any regulation has to have the right controls and governance arrangements in place. For a SSAS, this means protecting savers, promoting competition and preserving the integrities of the pensions tax relief system.
Given a SSAS’s status as an occupational scheme, they are currently regulated by The Pensions Regulator. Of the 34,500 occupational DC schemes registered with TPR as at December 2016, 21,000 of those were SSASs with between two and eleven members.
TPR also estimated that there could be as many as 750,000 one-member SSASs. This would put the number of SSAS members in the UK between 800,000 and one million, meaning the problem has scale.
Looking at the wider picture of occupational schemes, however, data from TPR in 2016 shows that there were 120 schemes with 5,000 or more members, which they say pointed towards a trend of concentration in the larger schemes.
The BT pension scheme, for example – one of the largest by fund size in the UK – had 200,000 members alone as of 2016.
Putting these figures together, you seem to have a growing spread at the bottom and an increasing consolidation at the top. This makes a one-size-fits-all regulatory approach challenging.
We also know from the BHS debacle that TPR’s focus is on the larger schemes. This is understandable. If a large scheme goes bust, tens of thousands of members are affected, so they have to take a risk-based approach. Where does that leave the smaller schemes though?
A SSAS is also a registered pension scheme, which means it is on HMRC’s radar. They have beefed up their vetting process for new schemes, and in September 2014 they introduced their ‘fit and proper person’ criteria for scheme administrators.
They also conduct ongoing due diligence such that if a scheme administrator has doubts over a scheme they are being asked to transfer to, they can ask HMRC to let them know if the scheme is still registered or if they have information in their possession that gives them concerns. However, it is still a big resource burden for them, and we have seen this play out in new scheme registration times.
Others have suggested the FCA is another option. SIPPs are regulated by the FCA, and they function in a very similar way to SSASs, so some kind of FCA regulation feels like a natural fit for a SSAS. In practical terms, though, how would the mechanics of regulation work? Who would be FCA-authorised entity in that situation?
A SSAS still technically has a scheme administrator, but depending on the structure of the SSAS the scheme administrator might be a professional trustee, a professional administration firm or the members themselves. It could take some work to achieve the consistent approach across the industry necessary to make it work.
In addition, the FCA has worked hard to rein in non-mainstream investments in SIPPs via the capital adequacy rules. This is with a view to protecting SIPP savers off the back of several horror stories. How would the FCA approach those investments in a SSAS where there is no ‘provider’ against which to impose the capital adequacy rules?
There is also the option of reintroducing the pensioneer trustee role (that disappeared in 2006), which is something we and others have suggested in the past. However, it’s fair to say there has been a mixed response.
I can understand both sides of the argument. On one hand, you can argue it affords a greater level of consumer protection. On the other hand, there are plenty of reputable non-trustee SSAS practitioners who are providing great service at competitive rates. This helps to promote competition in the industry and keep the bigger SSAS providers honest with their fees.
Either way, it’s clear that there is a place in the retirement landscape for SSAS, and many savers have achieved great outcomes for themselves, their families and their businesses. Better regulation generally equals better outcomes, but from a regulatory perspective, SSASs are a little bit in limbo.
The next step once the general election is done and dusted will be to see what comes out in respect of the pension scam proposals to see if that changes the picture in any way. But the bottom line is that the SSAS is deserving of a proper home, and it would be great if we could find it one.