Advisers must plan well in advance where their clients intend to establish a new small self-administered scheme (SSAS).
HM Revenue & Custom’s (HMRC) pension schemes newsletter 101, issued last month, confirmed that it would not be hurried in the scheme registration process and that when an online submission for a scheme’s registration has been made, no appeal can be made in respect of any delay until six months from the date of the submission.
This is because HMRC may ask for additional details in relation to the scheme. Our experience is that more often than not, registrations take in excess of three months.
These extended delays will be frustrating to advisers. No contributions or transfers can be paid into a new scheme until HMRC has formally registered the scheme. Alternative pension vehicles can be established to receive contributions (if needing to be paid, for example, before a company tax year-end) but they will not always permit the investment options that a SSAS will.
There is, however, a way around this problem where the client has an existing insured occupational pension scheme that is already registered with HMRC, such as an ‘executive pension plan’ (EPP).
EPPs have been around for many years and in fact offered some funding advantages over personal arrangements until Pension Simplification in 2006. Since then, the market has been in decline and few, if any, new EPPs have been established recently.
EPPs share a similar constitution to SSASs in that they are often standalone trusts created by the employer for selected employees.
Provided the EPP is not part of a master trust, it should have its own establishing deed and attaching scheme rules. These rules are likely to permit the investment of funds only available from the original insurance company provider, but the rules should also include a “power of amendment”.
This power will allow the employer and/or the trustees to replace the rules with up to date SSAS provisions and provided all members are also appointed as trustees, the EPP will be converted to a SSAS.
As the scheme is already registered with HMRC, there is no need for a submission to HMRC, other than to advise HMRC of any changes to the ‘scheme administrator’. Contributions and transfer values can then be paid in and self-investment of scheme funds carried out almost immediately.
‘Fit and proper’
There are however a number of other matters to attend to. The scheme must have a “fit and proper person” as scheme administrator. Therefore, this is an opportunity to appoint a professional practitioner/trustee to the scheme, who has relevant knowledge and experience of how a SSAS operates. New members could also be admitted to the scheme and would need to be appointed as trustees.
The scheme trustees will need to open a scheme bank account to receive new contributions and transfers and from which investment and benefit payments can be made. It should be possible to liquidate the insured funds to the bank account should it be deemed prudent if, for example, they be needed for other investment.
The conversion of an EPP to a SSAS offers another advantage too. As the existing scheme remains in place, any members with pre-A-Day protected tax-free cash should retain their existing entitlements.
From the adviser’s perspective, the conversion itself is not a pension transfer although the adviser will still obviously wish to document their advice accordingly.
The cost of alteration of scheme documents, appointment of new members and trustees and establishment of a scheme bank account should not be any more expensive than the process of creating a brand new SSAS and undergoing the registration process.
Not all EPPs can be converted, however. As well as the exception already mentioned, it may not be possible to convert schemes requiring the approval of the founder employer, where that founder employer no longer exists; schemes where the original documents, or true copies of them, cannot be traced; and schemes that have effectively been wound up and the policies assigned directly to the members.
Martin Tilley is director of technical services at Dentons Pension Management