Over recent years small self-administered schemes (SSASs) have somewhat taken a back seat to self-invested personal pensions (SIPPs) in terms of popularity. This has led some to question whether this could in fact see the eventual demise of SSAS. The reality of the situation is that SSAS continues to thrive, and there remains compelling reasons why SSAS can be the retirement savings vehicle of choice for business owners and their families.
There are a number of reasons why advisers should still consider SSAS as well as SIPP when a self-invested pension arrangement is deemed to be the most suitable option for the client. For instance, a SSAS with several members may actually be lower in cost to operate than a group of SIPPs due to the fact you are running a single scheme as opposed to multiple arrangements.
Economies of scale
Where there are multiple members of a SSAS and the members are pooling investments such as the purchase of commercial property, it is likely to be easier and cheaper through a SSAS than a group of individual SIPPs established for the same purpose. Ongoing SSAS provider administration fees are also likely to be more cost effective in this scenario. These fees are also often met by the sponsoring employer rather than being deducted from scheme assets, as these are a legitimate business expense.
Assets within the SSAS are usually pooled which means they are not allocated to specific members. Instead each member has an entitlement based on a percentage of the total fund. This therefore enables the trustees of the SSAS to pursue a consolidated investment strategy which can be far more cost efficient when comparing this to a group of SIPPs attempting to achieve the same objective.
Both SSAS and SIPP can borrow up to 50% of their respective net values, usually for the purpose of commercial property purchase. A multi-member SSAS will only require one loan with one lending fee, whereas a group of SIPPs all borrowing to purchase property on a syndicated basis are likely to require individual loans, thus being subject to multiple lending fees.
Extra investment flexibility
The trustees of a SSAS generally have the same investment options available to them as a SIPP. There is, however, one investment option that is unique to SSAS. A SSAS can make a loan back to the sponsoring employer, and this can be of an amount up to 50% of the net asset value of the SSAS at the point the loan is advanced. The loan will be secured as a first legal charge against an asset owned by the borrower or any other party, and unencumbered commercial property is a typical example of the type of security used for this purpose.
Running the SSAS
A SSAS is an occupational pension scheme established by a sponsoring employer for a small number of members. These can total up to 11 if the scheme is to retain its classification as a “small” scheme. The SSAS is set up via a trust deed and rules, and all scheme members will have to become trustees of the SSAS if it is to benefit from the numerous legislative exemptions conferred upon small schemes by way of The Pension Act 1995, that are not granted to larger occupational pension schemes. All decisions made by the member trustees will have to be made by way of unanimous agreement. The SSAS provider will then typically join with the member trustees in the role of “independent trustee”.
The trust deed and rules should be periodically reviewed and where necessary updated in line with changing pension legislation. Whilst the SSAS is operated by the trustees, they need to be aware of the implications of any actions they take. The day to day management of the scheme is therefore usually provided by the independent trustee who will have the necessary expertise to ensure that all decisions made by the member trustees adhere to HMRC guidance at all times.
The independent trustee will also usually act jointly with the member trustees to fulfill the formal role of scheme administrator. The Finance Act 2004 requires every pension scheme to have a scheme administrator. Whilst this role is usually held jointly by all trustees, in practice it will be the independent trustee who carries out the duties required by HMRC of the scheme administrator. These duties include:
- Reporting certain scheme events HMRC in a timely manner
- Completing and submitting the pension scheme return to HMRC on an annual basis
- Completing and submitting a scheme return to the Pensions Regulator as and when requested by them
- Providing information to scheme members, and others, regarding the lifetime allowance and benefit crystallisation events
- Ensuring the scheme remains compliant with pension legislation
- Operating tax relief on personal contributions under the relief at source system
The above is not an exhaustive list but covers some of the main duties incumbent on a scheme administrator.
HMRC requires any person registering themselves as a scheme administrator to declare that they are “fit and proper” to carry out this role. HMRC can refuse to register a scheme where the scheme administrator is not deemed a fit and proper person. They can also de-register a scheme if it appears that one of the persons who make up the scheme administrator is not a fit and proper person. Where a person acting as scheme administrator does not have a full working knowledge of pension legislation, they are able to employ an appropriate adviser to help them meet the fit and proper requirements.
There are a range of fines and penalties which can be imposed by HMRC on the scheme administrator for not performing their duties correctly.
Due to the penalties and complexity of running a SSAS, the vast majority of those wishing to set up a SSAS or that have been running a SSAS, turn to a reputable SSAS provider and independent trustee company to do this work for them.
It is important that all SSAS are reviewed regularly to ensure that the fees being incurred are at the right level and are commensurate with the service being received.
The review should also include an assessment of the documentation currently governing the scheme, and any concerns the members and adviser may have. Unlike a SIPP, it is relatively straightforward to move a SSAS from one administrator and independent trustee to another, and advisers and their clients should always keep this in mind.
Paul Darvill is director at Talbot and Muir