The Pensions Regulator efforts to stop pension scams should be applauded but their most recent proposals could significantly impact on pension transfers to SSAS (Small Self Administered Pension Schemes).
Andrew Warwick-Thompson, executive director for regulatory policy at The Pension Regulator, said in a February 2017 blog post “I believe that pension transfers to SSAS arrangements ought to be banned. In fact, to put a stop to their abuse, I believe that an outright ban on the establishment of any more SSAS arrangements also warrants serious consideration.”
The Effort To Stop Pension Scams
The Financial Conduct Authority’s Money Advice Service estimates there are eight scam calls per second in the UK. While not all scam calls relate to pensions the pension freedoms 2015 have presented a potential opportunity for those who may wish to profit by preying on the unwary and pension related scam calls have increased.
Pension scams can come in many forms from complete fraud to intentionally making unrealistic projections of how an investment may perform. They may propose inappropriate investments unlikely to ever generate an acceptable return (or make a substantial loss) or any mixture of the above. In late 2016 the government ran a 10-week consultation process on a number of proposed measures to reduce scams.
What is an SSAS
There are approximately 800,000 SSAS schemes in the UK of which roughly 750,000 have a single member. Small Self Administered Pension Scheme (SSAS) are generally set up by company (known as the sponsoring company) owners as an occupational pension scheme. Members of the scheme are limited and are generally also trustees of the scheme.
Benefits of an SSAS
An SSAS can give a business owner a high degree of flexibility over how they utilise their pension while securing the tax relief usually associated with pensions. An SSAS may invest in gilts, shares, units trusts, insurance funds and commercial property and land. They can be very effective for family businesses where assets such as property may be invested for the benefit of more than one generation. A key advantage is the sponsoring company may borrow or loan money from the SSAS (up to statutory limits).
Why Is The Regulator Considering A Ban On Transfers
The Pensions Regulator considers an SSAS as “exempt from many of the legal duties designed to protect members that are applicable to larger schemes” and therefore more open to abuse. For a one person SSAS the only person responsible for all decisions is that single member of the scheme. There are no checks and balances and the single member of the SSAS is therefore open to being scammed.
For those considering a final salary pension transfer in many cases made the transfer into a SIPP (Self Invested Personal Pension) but the SSAS option is also available. SIPP’s are subject to a higher level of regulation than an SSAS leaving the SSAS option as the preferred route for scammers.
With final salary pension transfer values on many schemes at an all time high the opportunity for scammers is obvious. They typically try to persuade final salary pension scheme members to transfer out of their scheme to access a high return investment opportunity they would not otherwise be able to access. They use the SSAS as a vehicle to action the transfer to attempt to fly under the RADAR of pension regulators. The pension fund may then be (worse case) stolen or (best case) placed in some dubious investment with the scammer taking a large fee.
Potential New Regulation
Regulation of SSAS schemes has steadily increased over the past fifteen to twenty years, although some at the Pension Regulator still consider an SSAS as an “open goal for scammers. ”An outright ban on the creation of new SSAS schemes or a total ban on pension transfers to an SSAS scheme remains a possibility but it is more likely that regulation will be increased.
It is possible a recognised trustee will be required for any new SSAS or strict conditions on who may set up a scheme could be put in place. An HMRC list of approved SSAS operators could be introduced or restrictions may be applied to the investments that may be held in an SSAS. It is also possible the one member schemes option could be removed.
The information in this article does not constitute financial or other professional advice. You should not take action on the basis of this article without seeking regulated independent financial advice that addresses your specific circumstances.