The small self-administered scheme (SSAS) isn’t young. Having arrived in the late 1970s, it is still fit and healthy, and every bit as relevant now as it was then. HM Revenue & Customs (and its predecessors) has been the SSAS’s regulator for some 35 years and there has been a long history of rule changes, reporting requirements and, on occasion, punitive tax charges for “rule breakers”.
However, A-Day in April 2006 brought arguably the most significant change in the history of the SSAS – namely the removal of the compulsory pensioner trustee role. That was replaced by the scheme administrator role, which in principle, could be met by any UK-based individual.
This meant that, with no knowledge or experience, a client could be scheme administrator to their own SSAS.
So, realistically, should the client company directors become the self-appointed SSAS scheme administrator?
Who is eligible?
The rules are fairly clear – pretty much anyone can be appointed as the scheme administrator for a SSAS and be recorded by HMRC as such. The registration process on the HMRC database is fairly simple and, once appointed, they remain in place until another person or company is willing to take on the role.
On A-Day, unless HMRC was notified to the contrary by way of letter, they automatically appointed the existing administrator to the scheme.
So, why shouldn’t a client take on the role of scheme administrator for their SSAS?
Understanding the rules
The scheme administrator has a day-to-day responsibility to ensure the SSAS follows all HMRC guidelines and scheme rules. Consider the following points:
• A typical SSAS trust deed and rules may run to more than 50 pages of legal and technical jargon;
• The HMRC manual has hundreds of pages of rules and guidelines, which are not necessarily up to date with the latest legislation;
• The regulations are complex and can be open to interpretation and so pensions expertise, knowledge and practical experience is needed to operate effectively;
• Legislation changes need to be monitored, detected and analysed to maintain current knowledge.
It is extremely unlikely the client will have the time, let alone the inclination, to develop and maintain the level of knowledge required to fulfil the role correctly. Worse than this, it is likely that most clients will not even be aware of the issues and risks they expose themselves to in this role.
Mistakes of going it alone
While a low overall percentage of all SSASs, a material number of schemes have not appointed a professional scheme administrator and have chosen to go it alone. Most SSAS providers have seen their clients remove them as scheme administrator, only to return somewhat sheepishly a few years later in a bit of a pickle.
We have recovered many self-run SSASs over the years and, unfortunately, had to refuse a few. Issues we commonly see, some of which can lead to tax charges, can be seen in Box 1 – and the list could go on and on.
Tax consequences of errors
The potential tax charges are wide ranging and could ruin a lifetime of saving. For example, a single transaction could generate tax charges of 40 per cent to the employer plus 15 per cent to the scheme administrator. If the transaction is large enough the employer is liable to a further
15 per cent. In extreme circumstances the scheme could lose its registered status leading to a 40 per cent charge on the scheme assets (payable by the scheme administrator).
Depending on the nature of the transaction, the scheme member could also be liable for some of these charges. It is easy to see that without a detailed knowledge of the rules, a client can seriously damage their own and their scheme’s financial position.
HMRC’s monitoring role
In response to increasing industry concerns about pensions liberation and associated fraud issues, HMRC has introduced closer checks on brand new SSASs being set up so as to ensure they are being created for genuine pension saving reasons. It is clear HMRC have the scent of wrongdoing by some in SSASs and there is an inevitability of closer scrutiny. And rightly so.
So should HMRC make the appointment of a professional SSAS scheme administrator compulsory?
Yes, but why? Here are four reasons:
Firstly, a significant number of self-appointed scheme administrators do not understand the rules and regulations, and others might be tempted from the straight and narrow by certain conflicts of interests and simply ignore them. In either case, they will inevitably generate tax sanctions.
Secondly, the reporting of “unauthorised payments” comes down to the scheme administrator, which would be an immediate conflict for any client acting in that role to their own SSAS.
Thirdly, tax issues will be avoided. And finally, a professional scheme administrator will be aware of the liberation and fraud issues and be in a position to act to protect the scheme and its members from loss.
Ultimately, HMRC must be confident in the standards of administration of SSASs. The alternative to a professional scheme administrator is possibly increased scrutiny and regulation. While both come at a cost, increased regulation creates a burden for every scheme.
The opportunity for advisers
Check which of your clients have a SSAS. Make sure you know who the scheme administrator is. If it is not an established professional then it is time to review the scheme, membership, and its assets. The more complex the scheme, the greater the risk of errors, so tackle the more complex SSAS first.
Contact a reputable SSAS provider and ask them to carry out a detailed technical review of the scheme. Some providers will carry out this service free of charge.
Work with the provider to identify any potential issues and work through these to find and implement solutions as soon as possible.
Clearly your services in this process will open opportunities for fee discussions. These discussions may, hopefully, open wider dialogue with the client. Many SSASs hold very significant wealth for clients and the value of your advice should stand you in good stead. Agreed client fees could be facilitated from SSAS funds should the member prefer, and the scheme permit.
Straight and narrow
A SSAS is an established pension vehicle, resurgent in recent years, and will continue to present great opportunities for clients.
Thousands of SSASs are operating without a professional scheme administrator, and this is generally a mistake. There is a very real risk of clients facing significant tax charges when things go wrong.
It is time for advisers to review their existing SSAS clients to make sure they are on the straight and narrow. Just do not be afraid to ask a respected SSAS provider for help along the way.
Jeff Steedman is head of Sipp and SSAS business development at Xafinity
