Busting the ‘unregulated’ myth

This article is part of
Small Self-Administered Schemes - January 2014

The unregulated’ accusation thrown at small self-administered schemes (SSASs) arises from the contrast with self-invested personal pension (Sipp) providers , which have to be regulated by the FCA.

This is a slightly unfair comparison as The Pensions Regulator (TPR) fills the role of the FCA when it comes to occupational schemes including SSASs. Also, HM Revenue & Customs monitors SSASs more closely than other schemes and issues annual scheme returns to scheme administrators to help monitor scheme activity.

It was in part the surge in popularity of Sipps with the resultant expectation that they would no longer be niche pension products that led to regulation of the Sipp industry. There are reportedly more than one million Sipp members across around 100 products.

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In contrast, SSASs did not experience a similar growth spurt. Although SSASs are becoming increasingly more attractive than Sipps – driven in part by investment choices for the latter becoming more restrictive in practice – it is generally thought that the SSAS market remains fairly steady at around 35,000 schemes representing up to an estimated 100,000 members.

So how do the authorities regulate SSASs, and how could they improve what they are doing?

The taxman

HMRC is primarily interested in making sure that scheme administrators apply pension rules correctly and that any tax is properly reported and paid. Key reporting requirements are the annual scheme return, the event report and the accounting for tax return. These supplement the returns needed to recover tax deducted from investment income or claim tax relief on member contributions.

The annual scheme return is the principal source of information gathering by HMRC. It is only required if demanded by HMRC but in practice almost all scheme administrators will receive a

notice to file the return by

31 January following the completed tax year. This scheme return contains summary information of the scheme investments and key transactions such as contributions and transfers in, lump sum payments and transfers out.

The event report also has to be submitted by 31 January but only where there has been a certain trigger event, such as payment of high value retirement benefits, transfers to overseas pension plans and unauthorised payments.

The accounting for tax return is a quarterly return to enable schemes to pay tax such as the lifetime allowance charge and charges on lump sum payments on death.

The issue with the annual scheme return and the event report is the lag between transactions occurring and becoming reportable. For example, a scheme set up in May 2013 would not need to submit an annual scheme return or event report to HMRC until January 2015.

HMRC also issues new scheme tax references and recently has started to intervene in the previously automatic registration process.

Chart 1 shows the number of new registered pension schemes each year since the 2007/08 tax year. Since October 2013, HMRC has been reviewing submissions before issuing the tax reference needed to make tax-relievable contributions and receive transfers in. This was in reaction to concerns some new schemes were being used to liberate pension funds.