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Pension scams, SSASs and the self employed

8th Dec 2016
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Firstly, some good news - more than six million people are now saving into a pension than in 2012. Quite a feather in the cap for auto-enrolment.

Now on to the bad. Last week, Steve Webb, previously pension minister and now director of policy at Royal London, highlighted some important issues related to business owners, pensions and accountants.

Webb highlighted a Citizen Advice report from earlier this year that found a lack of trust, understanding and information is holding self-employed people back from saving into a pension. Worst still, Webb says ‘there is also reason to think accountants and others now have less incentive to promote pensions to their self-employed clients than in the past’. This is just part of the reason that Citizens Advice is proposing that the Government, pension providers and advice bodies (such as the ICAEW, ACCA) must increase information and advice to self-employed people about pension options, so they can make informed decisions about how best to save for their retirement.

Against this backdrop, and after years of the mainstream advisers and pension providers crying out for tighter regulation around so called ‘pension scams’, Phillip Hammond has announced the outlawing of pension cold calling. A very welcome move.

However, in addition to introducing powers to stop ‘suspicious’ transfers, he also announced that Small Self-Administered Schemes (SSAS) will not be able to be set up by using a dormant company as the sponsor. While these are also welcome measures, there is a big BUT. The last of these measures causes a slight heart flutter in terms of message or perception that is being created in terms of the use of SSASs – particularly to those same small business owners Citizen Advice are already saying are misinformed about the benefits of pensions in general. Let me explain…

Up until April 2006, it was a legal necessity when establishing a SSAS to have what was known as a ‘Pensioneer Trustee’ – basically a professional firm who stood alongside the member trustees to ensure the smooth, compliant running of the scheme. For some bizarre, unfathomable reason, this requirement was removed – opening the doors to all and sundry to establish their own SSAS. This, in certain quarters, led to a kind of ‘wild west’ in terms of the underlying investment strategy (or lack thereof!!) and suddenly the SSAS structure became the scheme of choice to facilitate many a scam and/or pensions liberation.

It’s true that SSASs are not regulated by the FCA, but they are regulated by The Pensions Regulator (TPR) and to a certain extent by HMRC. Most industry commentators would observe that TPR has been asleep at the wheel in terms of their role. This is hardly surprising given the considerable pressures that the TPR have been under regulating Defined Benefits schemes and more recently policing the roll out of Auto Enrolment.

However, it was interesting that just a few weeks ago, and to coincide with the Autumn Statement, the TPR woke from its long sleep to issue a warning in relation to ‘one member’ SSASs and their inappropriateness. I found this a rather odd, sweeping statement, which also completely lacked any reference to the fact that many small business owners (of which we have almost five million in the UK!) have used SSASs for many years as a highly effective pension, tax and estate planning tool. For instance, a company director can use their accumulated pension funds to purchase a commercial property and also provide a loan back to his or her own business – thus paying interest back to their own pension (rather than the bank). Furthermore, the SSAS takes security over the business assets (rather than the bank), and the commercial property is creditor protected and future growth is free from CGT (amongst other benefits).

So, my point is this. There absolutely should be hard and direct action to stop any scamming of the unsuspecting public of their pension pots. But, please do not let there be mission creep and tightening of the SSAS rules to the extent whereby genuine planning for business owners and entrepreneurs becomes nigh on impossible. For instance, the recent statement from the TPR has already reached the accounting community, a hugely influential and important sounding board for owner managers.

So, what should be done? A potential solution would be to bring back ‘pensioneer trustees’ and consider bringing SSASs into the regulatory remit of the FCA. This will provide small business owners with the ultimate rubber stamp of approval – something that their accountants can also echo to their wider client base. The SME can then do exactly what Citizen Advice recommends. They can quite simply - make informed decisions about how best to save for their retirement.

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