SSASs without administrators: An orphan’s tale

The bespoke product has been serving pension holders for many years. Conceived in the Finance Act 1973, it could arguably stake a claim to a 40th anniversary this year, shadowing the 22 years claimed by its cousin, the self-invested personal pension (Sipp).

But it has not always been plain sailing. Since 6 April 2006, there has been no requirement for a SSAS to have an independent pensioneer trustee to manage its administration. While some SSASs have continued employing an independent administrator, others elected to save costs and perform the duties themselves. This has led to a raft of SSAS orphans, many of whom get themselves into difficulty by accidentally falling foul of the rules.

Background

As with Sipps, SSASs evolved from a time when they were largely governed by legislation invoked by the discretion of HMRC (then the Pension Schemes Office) and principles set out in Joint Office Memorandum 58.

The role of pensioneer trustee was created at the outset and made compulsory for the initial and continued approval of a SSAS. A pensioneer trustee was an HMRC-approved individual or company, whose primary role was to prevent the inappropriate wind-up of the scheme and distribution of its assets other than in accordance with the scheme’s trust deed and rules.

In practice, however, the pensioneer trustee role extended beyond these explicit and important duties. The Finance Act 1998 made it impossible for a pensioneer trustee appointment to be terminated other than when it was directly replaced. The role was strengthened further by the issue of Pension Schemes Office update number 69, which required the pensioneer trustee to be a compulsory signatory on scheme bank accounts and co-owner of scheme assets. At this point, it was clear the pensioneer trustee, in addition to their primary duties, was usually providing much of the scheme’s reporting and administrative roles.

But the position was effectively removed by the Finance Act 2004 as part of the much larger pensions simplification process. From its implementation in 2006, it instead introduced a new role – the administrator.

Shifting responsibility

With no more legal requirement for a professional or independent trustee, many SSAS clients from A-day onwards have taken the opportunity to save costs and either remove, or simply not replace, any previous pensioneer trustee. While SSASs remain under the duty of trust law – requiring the scheme to be run in accordance with its deed and rules – the bulk of responsibilities now sit with the administrator.

The administrator responsibilities are:

• Registering the scheme with HMRC;

• Paying certain tax charges;

• Providing information to HMRC, scheme members and other pension schemes.

Unless the role of administrator is specifically outsourced, it collectively lies with the scheme’s trustees. In accepting the role, a lay trustee must declare that they:

• Understand the responsibilities for carrying out the function in accordance with the Finance Act 2004;

• Intend to carry out these functions;

• May be liable to a penalty or prosecution if they make a fake statement.

Worryingly, many member trustees appear to be ignorant of their responsibilities as administrators and therefore appear to be failing in some of their duties.

Regulatory watch

When certain events occur within a SSAS, they must be reported, often to HMRC as a taxable event. The reporting of numerous such events, principally to HMRC, seems to be triggering more in-depth reviews by both HMRC and The Pensions Regulator. A number of providers offer to act as trustee and accept the role of administrator; many of these are increasingly contacted for assistance by orphan SSAS trustees under review or investigation for failures or misdemeanours, many of which were unknown or not understood until the investigation began.

Alongside the removal of a pensioneer trustee, HMRC has had its powers of discretion severely limited. Prior to 2006, if a SSAS misstepped in its reporting or investments, rather than instantly raising a penalty or tax charge, trustees were often given a 90-day period in which to correct the position or remove the offending investment from the scheme. If complied with, the scheme was permitted to continue unpenalised, albeit perhaps with a black mark against it.

Now, no such period of grace exists and under the current regime, once a breach has occurred, a tax penalty will be incurred. Even if the breach is corrected, with no advantage gained by any connected party or without any loss of revenue to the Treasury, the tax penalty will still be owed.

Depending on the breach, a tax penalty might fall on one or more of the founder employers, a scheme member or the scheme itself. Box 1 shows examples of breaches we have been asked to assist with, ranging from a clear misunderstanding of the rules in accumulation to mis-payment of benefits during retirement.

Breaches may also occur in providing the scheme’s administrative functions. Failure to provide annual member statements – or lifetime allowance statements where benefits have come into payment – is a breach of duties, as is the non-deduction and accounting for tax due on any benefit payments.

Sadly, in several of these examples, there is nothing to be done but correct the issue and pay any tax or penalty due. This is often a bitter pill to swallow where no intent to err or deceive was evident.

Before the horse bolts

Employing a specialist SSAS practitioner might be regarded as an unnecessary expense, but not doing so could be a false economy.

In the past, some financial advisers may have viewed such an appointment as encroaching on their services, as some practitioners do offer additional consultancy/advisory and investment services. However, with the RDR now in place, there are clear roles for advisers to fill and be remunerated for. These include:

• Advising the founder employer on contributions, funding and tax issues;

• Advising the trustees on investment opportunities; and

• Advising the members on benefit accrual and drawdown options on vesting.

Advisers would be wise to review their own client banks to look out for any orphan cases.

With the complementary services of a specialist SSAS practitioner taking responsibility for the legal documentation, administration and reporting, a complete service providing client reassurance can be made.

Ian Stewart is joint managing director at Dentons Pension Management