While regulation was brought in to prevent members receiving some kind of beneficial enjoyment from the investments of their scheme before retirement, there was also the introduction of the Pensioneer Trustee. The investment restrictions and formal appointment of the Pensioneer Trustee were incorporated in the infamous Joint Office Memorandum Number 58 issued in February 1979, setting out the structure for a Ssas from then on.
This also defined a Ssas as an occupational scheme with no more than 12 members. Memorandum Number 58 stresses that the Pensioneer Trustee is a person or body well known to the Inland Revenue whose principal responsibility is to ensure that the scheme is not wound up improperly; in other words with monies being transferred to the members.
Specifically, it stated that the Pensioneer Trustee is not a “watchdog” for the Inland Revenue in any area other than the improper termination of the scheme. In reality all those who have been involved with them since the late 1970s have felt that their responsibility to the Inland Revenue was significantly greater than that in relation to monitoring the wind-up of the scheme.
Changes in legislation, such as the requirements for the Pensioneer Trustee to be a joint owner of all assets of the pension scheme and to be a joint signatory on a scheme’s bank account effectively proved that the Inland Revenue was assuming that the Pensioneer Trustee would ensure that the pension scheme and its members abided by the legislation during the normal development of the scheme, not just at termination.
It is also true to say that, through the Association of Pensioneer Trustees, professional Pensioneer Trustees developed a strong working relationship with the Inland Revenue over the way in which a Ssas is both administered and reported. A clear two-way conversation and understanding was in place. This benefited not only the Inland Revenue but also those practitioners who were active in the management of such schemes. The ability of the Inland Revenue to exercise discretion under the terms of the existing legislation was a vital and positive contribution to the way in which such arrangements were managed.
While the introduction of the new legislation took some years to come to fruition, it was clear early on that there would be certain clients who would take advantage of the absence of the Pensioneer Trustee, particularly those who objected to paying fees for what they saw as an intrusion into the way they wished to manage their pension arrangements. The proportion of Ssases that removed their Pensioneer Trustee immediately after A-Day (6 April 2006) is thought to be as high as 10 per cent and it is almost certain that a significant proportion of these schemes have gone “off the radar” and are operating in a manner which would not have been acceptable to the Revenue prior to A-Day.
The problem of there not being a Pensioneer Trustee does not just relate to those schemes who deliberately “orphaned” themselves at A-Day but also to the more recent establishment of new schemes. The process to register a new occupational pension scheme is very simple; anyone can set up a company, establish a Ssas and register it with HMRC, take transfer values from previous pension arrangements and then either invest that pension scheme’s monies in such a way as to gain personal benefit or, in the extreme, to merely strip all the money straight out of the pension scheme and effectively disappear.
While a more common form of pension liberation and one with which the pensions regulator is concerned, is where an innocent member of a pension scheme is persuaded to transfer into an inappropriate arrangement to enable them to take cash out of their pension scheme before they are legally entitled to do so, this is a more sophisticated and personal fraud. Were there a requirement today for a Pensioneer Trustee to be appointed for every Ssas, then this specific area of pension liberation and abuse of pension scheme registration could be closed immediately.
In 2005, the government also decided that, as it had concerns about residential properties being introduced as investments of self-administered pension schemes, they would ask the FSA to regulate not only insured personal pensions but also Sipps. This covered both the sale of Sipps by intermediaries and the administration of Sipps by authorised operators. The new regulations came into force with effect from 6 April 2007, but the regulators have significantly widened their remit on Sipps (both the selling and the operation) with the protection of the customer and their expectations being paramount. This appears to be a far cry from the original intention as to why the FSA was originally asked to look into the regulation of the Sipp market.
This of course means that a Ssas and a Sipp are differentiated in a fundamental manner as one is regulated by the FCA while the other is not regulated at all. It could be argued that this gives the Ssas market an advantage so there are those who call for Ssasses to be similarly regulated. However it is important to bear in mind that one of the significant benefits of a Ssas over a Sipp is the ability to make loans back to the sponsoring employer.
Imagine the difficulties that would be encountered by both member trustees and professional trustees of small schemes, if loans to the company had to be subject to serious due diligence as to whether this was specifically for the benefit of the member or for the benefit of the employer, given the fact that the directors of the employer will almost certainly be the trustees of the scheme and also its members. While there may be conflicts of interest at present among these various categories, the additional imposition of FCA regulation on member protection, could impact significantly on the small self-administered scheme market.
Ian Hammond is managing director of Rowanmoor Group
Key points
* The investment restrictions and formal appointment of the Pensioneer Trustee were incorporated in the Joint Office Memorandum Number 58 issued in February 1979
* While the introduction of the new legislation took some years to come to fruition, it was clear early on that there would be certain clients who would take advantage of the absence of the Pensioneer Trustee
* A Ssas and a Sipp are differentiated in a fundamental manner as one is regulated by the FCA while the other is not regulated at all
A history of change
Significant changes in the management of a Ssas started with the Green Paper in December 2002, entitled Simplifying the Taxation of Pensions: Increasing Choice and Flexibility for All.
Apart from its perceived ambition of simplifying and reducing the number of types of pension arrangements, there were a number of issues included within the text which had specific relevance in the provision of a Ssas; namely a strong reference to the fact that there would be a lack of restriction on investments for pension schemes from then on, with the provision that if the HMRC felt a member was obtaining a personal benefit from any such arrangement, then there would be an appropriate tax charge raised and secondly (and most controversial and relevant for the Ssas) there would no longer be a requirement for a Pensioneer Trustee.
This was claimed to be a result of European legislation which required total mobility and availability of pension arrangements across all European countries and the restriction imposed by pensioneer trusteeship on a Ssas in the UK was therefore against European law.