From Special Report: Focus on Pensions - March 2012
Will 2012 be the year of SSAS?
Growth is picking up in the SSAS market, with many predicting double digit growth that will eclipse the SIPP market. Laura Suter looks at whether this is realistic
Usually commentary on SSASfocuses on it being a minnow in comparison to SIPPs, that it has yet to see mainstream success and that a boom is predicted. This is no longer the case. David is taking on Goliath, as 2012 is predicted to be the year that SSAS growth eclipses that of SIPPs. As Nathan Bridgeman of Talbot and Muir says, “2012 will be the year of the SSAS”.
Fighting the battle
Typically SSASs have been the small brother to SIPPs. While SIPPs saw around 30% pa growth following A Day, SSASs never really seemed to get off the ground. No doubt, they saw solid growth, but the same flood of providers and investors never came into the market.
SIPPs had the benefit of numerous large providers moving in, alongside hefty marketing budgets and regular press coverage. This meant that the product become the must-have among mid to high net worth individuals, with it being a badge of honour to talk about having a SIPP at the golf club of an afternoon.Alongside this popularity came more providers and so more innovation, leading to lite SIPPs, cash only SIPPs, family SIPPs and even SIPPs for children.
Meanwhile, SSASs lingered in the background. Still used by many and seeing growth each year, they did not have the same ‘en vogue’ period, despite many good features.
Typically used by companies and businesspeople, they did not have the same appeal as SIPPs, which led to fewer providers in the market and so, inevitably, less innovation. This is despite many pointing out that they have better features than a SIPP, are often cheaper and make certain purchases easier.
However, it seems that the tides are turning. In a year when the number of SIPP providers are predicted to contract under the burden of regulation and increased capital adequacy and when SIPP growth rates are also predicted to tail off, it seems now may be the time for SSASs to emerge.
This has been predicted most recently by James Mattison, a former director at James Hay Partnership, who has now bought SSAS business Whitehall. While obviously having placed his money, and livelihood, on SSASs emerging from the shadows, Mattison is predicting that the SIPPs boom is over.
Claiming that the number of true SIPPs, so those that allow the full range of investment options, has reached a plateau, he predicts SSASs to take up this growth. He admits that SSAS are seen as outdated, but says that a new pricing structure from Whitehall, to ‘drag it into the 21st century’, will help to attract investors.
He is not alone in predicting this boom. Nathan Bridgeman, director of technical services at Talbot and Muir, is also predicting a bumper year for SSASs, with sales already on the up.
However, while SIPP and SSAS provider Hornbuckle Mitchell is also assuming a rise in SSAS numbers, it does not believe that they will outsell SIPPs this year. David White, managing director of Hornbuckle Mitchell, said, “While there are advantages to using a SSAS I do not foresee the market growing at the same speed as the SIPP market has done.”
What do the figures say?
Table 1 means that the growth in the SSAS market can be assessed accurately. Providing the funds under management for each provider, in addition to the total number of schemes and the number written in each year, the Table shows the market size for those participating.
A few changes have occurred in the Table, with the some firms failing to submit this year, either due to lack of resources to complete the survey or not wanting to publish figures. This includes Accomb Trustees, Hanover, KKW Pension Management and Simmonds Ford. However, newcomers to the survey are Ashcourt Rowan, InvestAcc and Standard Life, while D A Philips is now shown under the name DP Pensions.
The total for all providers in the Table is shown in addition to the individual entries, with the total market having increased from £11,621m in September 2011 to £15,074m as at 1 January 2012. As expected the average provider size has also increased from £505m to £685m.
Part of this growth is due to an error in the past Table, with both Hornbuckle Mitchell and Mattioli Wood’s figures, which were represented as £1.1m, rather than £1.1bn each, which obviously represents a chunk of the market growth. If these are taken into account then the total market size at September last year should have been £13,818m, meaning the increase in this survey is a more muted jump of £1,256m or 8.9%.
Hornbuckle Mitchell’s figures have stayed the same at £1,100m for this Table as the company is currently undergoing a system change and so cannot access the data.
Wensley Mackay is one firm that has seen growth in its assets under management, from £34m to £40m over the six month period. While a smaller provider in the market and nowhere near the big book of Rowanmoor at £2,731m, the jump represents a 17% growth in assets.
Barnett Waddingham has also seen an increase in its figures, although much lower in percentage terms. Its assets under management have risen from £2,644m to £2,699m, just a 2% increase.
Despite this jump in figures overall, a look at each provider sees that the growth is fairly evenly spread across the providers, with some even seeing a drop in assets. One example is AJ Bell, which has seen a reduction from £680m to £677m, while Rowanmoor has seen a drop in funds under management from £2,850.4m to £2,730.8. These likely reflect the turbulent economic times, with the underlying assets in the scheme subject to the current market turmoil.
Robert Graves, head of pensions technical services at Rowanmoor, does not buy into the hype that SSAS will reach the popularity of SIPPs. He adds, “The SSAS market has been and will remain a niche market for the foreseeable future. The key reasons are that the market for SSAS is more restricted, essentially being applicable only to directors of small businesses.”
Graves also raises the issue that as the main drivers of SSAS business are commercial property and loanbacks, they do not present an attractive proposition for neither advisers nor providers that are looking to accumulate funds under management.
This is a key issue that many believe hinders the growth of the SSAS market, that advisers are not willing to push them. They are a niche product and one that many advisers are not aware of nor will recommend to clients.
However, many predict that this is set to change, particularly with the onset of the RDR and the push for all options to be considered for an adviser to be classified as truly independent. Many see that those advising on pensions will at least have to know about and consider SSASs, if only to discount them. And they claim that in doing so more advisers will learn about the benefits of SSASs and so will recommend them.
Commission is another big issue that many feel has stood in the way of the success of SSAS. Providers were offering hefty commission on SIPP products, with many attributing the success of them directly to this. However, in a post-RDR world where commission is eliminated, this could give SSAS the real chance to be considered.
Talbot and Muir’s Bridgeman thinks that this factor alone will lead to a rise in SSAS sales. He adds that the RDR will also lead to more advisers becoming full holistic financial planners, focusing more on areas such as tax planning and estate planning. This will lead to a natural move to look at SSASs, as they can offer impressive tax breaks, says Bridgeman.
Looking at Table 1, Talbot and Muir have seen an increase in SSAS business from £300m to £313m, a 4.3% increase. However, the company says that it has seen its busiest January ever, beating 2011’s record breaking results. Bridgeman adds that he would be disappointed if Talbot and Muir’s SSAS business did not see a 50-75% rise in 2012, from both new business and takeovers. A bold goal.
What does it cost?
Table 2 looks at the charges levied by the different SSAS providers, from setup and annual fees to the cost of property purchase. Also listed are the key features of that provider, showing what level of service is offered. As with the SIPPs survey, comparing the different providers is no easy task, as they all use different charging formats, meaning that advisers are hard pushed to compare like with like.
Looking at just those that quote a flat fee, the most expensive setup cost is Bespoke Pensions Management, at £1,760. For this high fee the company also does not offer any actuarial services or advice, nor does it act as scheme administrator. While the annual fee, of £710, is lower than many, the company also states that additional fees on a time cost basis, charged at £167ph, may be payable.
The company is a small provider in the market, having only 75 SSASs, although as no funds under management figures are disclosed it is difficult to know what end of the market it is targeting. However, one would assume it is high net worths, for whom these fees do not represent a high percent of the pension pot.
At the other end of the spectrum in terms of setup costs are the providers that charge no fee, namely Friends Life, IPM Trustees, JLT’s Premier SSAS, Scottish Widows and Xafinity SSAS. L&G also charges no fee under one of its charging structures, but levies an additional annual fee to compensate for this.
The annual fee also varies in format, with some companies charging per member, while others charge a flat fee regardless of the people in the scheme. It is here that advisers need to drill down to assess what structure is most suitable for members, based on the number in the scheme now and the number that there are likely to be in the future. For example, it is a false economy to pay no charge for setup and then be subject to a high per member annual fee if there are five people in the scheme.
Property charges are another key area to look at, as the purchase of commercial property is a big driver for SSAS schemes. A number of providers merely state that the fee will be on a time cost basis. With property purchases this is understandable to a certain extent, as anyone who has bought a house will know, the process can either be very simple or become extremely complicated.
With the annual fees charged by providers for property, it is worth looking into what is offered for this cost. If administration of VAT, all paperwork and mortgage related costs are covered then it may prove good value for money, while others may charge simply for holding the asset in the scheme.
James Hay offers one of the lowest cost propositions for those wanting to make use of commercial property and loanbacks, as it includes these elements in its annual fee. This is even relatively low at £400 in addition to £100 per member. While not being anywhere near the biggest player in the market, the company has a healthy number of SSASs and funds under management, meaning that it is clearly attracting business, but also has the economies of scale to be able to offer lower fees.
Another key feature of the current climate that may well aid SSAS popularity is the focus on fees. There is current uproar in the fund management sector focusing on the large amount that fees take from funds, particularly in poor or averagely performing funds. This is also the focus in the pensions world, meaning that it seems inevitable that it will spill out into other areas of finance.
SSAS have long been touted by their fans as cheaper than SIPPs for a number of areas – namely the buying of commercial property. Just one SSAS needs to be set up if a group wish to purchase the property, meaning that only one set of annual and setup fees is paid, rather than numerous in the case of SIPPs. In addition, just one set of legal, admin and surveying costs have to be paid, considerably reducing fees.
With this focus on fees and many advisers feeling that they will have to justify their charges in a post-RDR world, it is logical to think that SSASs may be favoured in the future.
Cynics argue that this is the reason that the SSAS market has not seen the explosion of interest from providers as SIPPs, as the profit margins are not as big. However, with pressure on SIPP profits and the cost of running the schemes coming to a forefront in 2012, there is opportunity for change.
Table 2 also shows if any minimum investment in the provider’s own funds is required. For the majority this is not the case, largely because a number of providers are small groups specialising in SSASs or pensions, and so do not have their own funds.
However, a handful, namely Friends Life, Scottish Widows and Standard Life, all require investment in their own funds. For Friends Life this is the greater of either £5,000pa per scheme or £3,000pa per member, to be invested in insured funds. Scottish Widows comes in lower, with a minimum of £2,000pa to be invested in any of 128 internally or externally managed insured funds.
Meanwhile, Standard Life insists on £5,000pa for a one member scheme, increasing by £2,500pa for each additional member. However, all of this does not have to come equally from each member, with the minimum per member being £1,500pa.
Another factor to be considered is whether the provider or plan has restrictions on investments. Similar to the argument in the SIPP world, many feel that a SSAS should offer the full flexibility of investment, with no limits. Admittedly most do offer this functionality, with just AJ Bell, Dentons, Ebor Trustees, JLT Premier, Lindley Trustees, Standard Life and Taylor Patterson putting a limit on. These vary between provider and are too extensive to list, but should be borne in mind when the selection process is underway.
Where to now?
The figures in the Table show growth, no doubt, but they do not hint at an explosion in the number of schemes that some are predicting. Some providers are looking at putting more marketing budget behind SSASs this year, in a bid to push the products. This is likely due to many feeling that the SIPPs market has saturated and will not see a boom in growth.
However, the SSAS story appears to be a self-fulfilling prophecy, with many providers saying that it will never see the popularity of SIPPs and so not putting advertising behind it, nor running extensive education schemes for advisers. However, without this push, it is unlikely that the schemes will spontaneously see a rush of interest.
This year appears to have started out better than most, with some providers already putting their efforts behind the schemes and predicting high double digit growth. Whether other providers jump on the bandwagon and whether this has any real effect with advisers is a big unknown.
One thing’s for sure, 2012 is likely to be a big year for SSAS, but whether it will be the year of the SSAS remains to be seen.