PensionsJan 24 2014

SSASs make a comeback

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A SSAS is a type of occupational pension scheme, set up by an employer for a select number of its directors. Differing from Sipps, SSASs are separate schemes for employers and costs are not charged per member, but per scheme instead.

But how else do they differ? A Sipp can be set up by any individual, but a SSAS is almost like the Sipp’s more exclusive sister, in that only company directors are able to set one up, and a limited number of just 12 people can join, including its founder.

As the name suggests, SSASs are self-administered; meaning the founder of the scheme – the company director – is also its trustee, unlike a Sipp, where the provider is the trustee.

Typically, initial set up charges are more expensive for a SSAS. October 2013’s Money Management Sipp survey showed the average initial charge for a Sipp lies at roughly £180, but this year’s SSAS survey shows a set up charge of between £500 and £2,000.

As well as being a more expensive option, SSASs come with obstacles. Until 6 April 2006 (A-Day), it was a requirement of HM Revenue & Customs that a professional trustee (known as a ‘pensioneer trustee’) must be appointed. But this is no longer a requirement – although some providers may still insist on it – and has led to under-qualified trustees incurring penalties due to problems that could have been avoided under proper regulated supervision.

Whatever issues SSASs face, the industry is still growing at a fast rate and hundreds of schemes are being set up each year.

It should be noted that all figures in this year’s survey are as at 1 December 2013, unless otherwise specified.

One noticeable absence from this survey is Hornbuckle Mitchell, one of the SSAS industry’s largest providers. The firm said due to “structural changes” it would not be participating. Last year, it had the fifth largest amount of funds under management.

New beginnings

Table 1 shows the assets under management for all providers. The Table also shows how many SSASs were set up over each of the past four years. As with all parts of the survey, it is down to the discretion of the scheme as to whether or not it provides this information.

Some firms did not disclose their assets under management, but did provide how many schemes were set up. Just Channack Consultancy Co and Oval Trustees decided to only provide the total number of SSASs they respectively have on their books. One firm, Nigel Sloam & Co did not provide any information for this section of the survey.

As with any survey, the number of participants always varies, and the amount of information supplied differs. But according to our figures, the total number of SSASs set up in 2013 grew by almost 200 compared to 2012. And since 2010, the number of SSASs set up more than doubled, from 376 in 2010 to 870 in 2013.

The standout figures come from James Hay, Mattioli Woods and Rowanmoor who set up 118, 121 and 133 SSASs in 2013 respectively, the largest amount of all providers. The average number of schemes each provider set up in 2013 stands at 40, up from 31 in 2012.

SSAS breakdown

The survey results make it clear there are four main contenders in the market. Barnett Waddingham, James Hay, Mattioli Woods and Rowanmoor are the only four to hold more than £1bn of funds under management. The largest, Barnett Waddingham, has £3.2bn in more than 1,800 schemes. Rowanmoor comes in next, with £2.8bn across more than 3,000 schemes.

Like any other product, it is essential to know exactly what is offered and how much it all costs. Table 2 shows a breakdown of exactly what is available, along with charges from each provider for their SSASs.

There are many types of SSAS, all with different business models. As previously mentioned, the initial charge into a SSAS is generally much higher than for a Sipp. Some providers – namely Scottish Widows and Xafinity – charge nothing from the outset, but differ in their approach to annual fees. For example, Scottish Widows has a £940 flat annual fee, while Xafinity charges £750 each year for the first two members of the scheme, and a subsequent £290 pa for each additional member. Adding a new member to an existing scheme also comes with a £145 fee.

Other than these, the cheapest according to the survey is £200 for JLT Premier Pensions’ Premier SSAS, excluding VAT. The highest fee is from Mattioli Woods, which charges £2,500, however its annual fees are slightly lower than other providers. Wensley Mackay did not provide a breakdown of fees, but states that overall, it charges £2,500 for one year all-inclusive, with 0.25 per cent Nav thereafter. It should also be noted the cost includes any property purchases and loanbacks within the first year.

While both these fees may seem high, it may not be the case. Some firms choose to calculate charges on a time-cost basis, or set charges by negotiation. Many providers have either initial, annual or one-off property-buying charges set, but others use a different structure, making it difficult to compare with their peers.

Last year’s survey showed Nigel Sloam & Co as one of the priciest options of the SSAS providers. The firm has reduced its charges to an initial fee of £1,000 plus £150 for every additional member, with an ongoing annual cost of £450 plus £135 for additional members. Although cheaper than last year – its initial fee was £2,400 with a £1,410 annual fee – it still remains one of the highest, particularly when looking at charges for loanbacks. The firm charges £975 for this, and any fees for buying property are calculated on an initial time-cost basis and an annual £200 fee. The firm has previously attributed higher costs to the wealthier clients the firm caters for.

But fees are not the be all and end all. One of the most important aspects of a SSAS is what it offers. The Table shows whether companies offer the following; independent trustees, scheme administration, in-house actuarial services, retirement planning advice, investment advice and general consultancy.

As has been noted before, no two SSAS providers are the same, and the Table also shows the variety in what is offered by each provider.

Table 3 is a new comparison this year, and shows the types of schemes available for providers. The survey asked providers whether they offer a full, hybrid, 90/10 or a deferred SSAS – a scheme that invests wholly in insurance company pension funds.

All but three providers offer just a full SSAS with no other alternatives. Hanover Pensions offers a full, hybrid and deferred scheme. Old Mill offers the same, while Scottish Widows offers a full and hybrid SSAS. No provider offers a 90/10 SSAS, where 90 per cent of the scheme’s assets are invested in insured funds and 10 per cent in non-insured assets such as unit trusts.

Industry concerns

As with any product, SSASs are not immune to provider and adviser concern. For example, Barnett Waddingham says one of the biggest concerns of the SSAS market is that the schemes continue to thrive on their flexibility and any potential challenge to this will impact on the market.

“Challenges can come from changes to legislation and other parts of the pension universe. An example is the restriction in Sipp flexibility as a reaction to satisfying the apparent demand of the regulators,” the firm says.

Additionally, it adds the market has enjoyed a healthy period as investors are looking to gain more control over their pension savings as it has been seen as a more flexible option. This has been despite having to pay a premium for the added investment choice and, to some extent, added consumer protection.

TJ Green said that constant legislative change for SSASs is a “disincentive” for any long-term commitment.

One other area that has concerned providers has been regulation. Last year, 29 per cent of survey respondents identified regulatory change as the area of most concern, covering a wide range of issues. Providers said they were worried about the almost constant changes to pensions legislation and HMRC rules, highlighting the difficulties of making long-term retirement saving plans when the playing field keeps changing.

Regulatory worries

But as a SSAS provider, Dentons’ concerns lies around the perceived lack of regulation that surrounds SSASs as compared to Sipps.

It says, “The FCA is cracking down on Sipp providers and their practices and procedures and many Sipp providers are, as a result, tightening their asset acceptance lists. As a result of this, the non-regulated salesmen who have made a living pitching high-risk and sometimes wholly inappropriate unregulated investments at unsuspecting Sipp members will probably turn their attention to SSASs.

“This, coupled with the apparent ease with which a SSAS can be misused for pension liberation leads to the belief that it won’t be long before some action is taken by either The Pensions Regulator or HMRC to prohibit these practices.”

While wholly supporting any action to preserve the good reputation of the SSAS industry and additional regulation, or indeed the requirement of a regulated administrator for example, Dentons hopes that any action, if and when taken, is appropriate and not excessive. It says it particularly hopes it does not overly increase the administrative cost burden, which ultimately will be borne by the client.

Pensions liberation has remained one issue firmly on the minds of providers, with many survey respondents claiming it is an issue.

Xafinity says it is its biggest concern. “This is high profile with HMRC at present and it has made it clear to providers that it expects their assistance in identifying any potential liberation vehicles – whether that be transfers or investment.

“To this end, we have developed robust processes (in conjunction with The Pensions Regulator’s guidelines) and carried out extensive training of staff in order to allow us to move readily identify potential liberation vehicles,” the firm adds.

Plenty of optimism

But it is not all doom and gloom. Rowanmoor says there are plenty of points for optimism. Purchasing a commercial property as a pension investment has been growing in popularity and it is likely to remain popular, but with the further lowering of the annual allowance, it is more likely that individuals will have to pool their pension funds, the firm says.

“The SSAS, with its common investment fund structure, is ideal for joint investments like property. Furthermore, it is likely that the Sipp market will contract in terms of those providers allowing investment into commercial property if the FCA’s proposals to class property as a non-standard asset goes ahead.”

This is because allowing property would increase a Sipp operator’s capital adequacy requirements, which may not be viable for some providers. Rowanmoor says this could result in greater use of SSASs for property purchase.

The firm points out the RDR may have also boosted interest in SSASs from financial advisers whose business models have shifted from remuneration based on funds under management, to one of charging fees for advice given. “SSASs do not suit the funds under management business model but have historically always supported the payment of fees through a client agreement.”

What lies ahead?

Barnett Waddingham predicts that there are some “big eyes watching” what is going on in the market. “HMRC has tightened up its registration process for new schemes in a valiant effort to stop new schemes intend on liberating funds.”

The issue remains, however, that there is uncertainty over how the HMRC is determining whether a scheme is legitimate or not. The firm says an unfair assumption could be that SSASs are generally bad schemes. They are not, and liberation is most definitely not confined to a SSAS if you define SSAS as requiring members to be trustees.”

In late 2013, The Pensions Regulator issued a code of practice for defined contribution schemes. It lists various marks they expect DC schemes to have.

Barnett Waddingham says because there is no published exemption for SSASs, and with the guidance directed at trustees rather than administrators, it seems that the member trustees of SSASs need to up their game when it comes to communicating with themselves.

“This sounds too flippant,” the firm says, “there are some useful comments in the code of practice that, with careful amendment and application, could prove a useful blueprint of the gold standard of SSAS administration.”

In the pre-RDR world, the commission structure of pensions did not sit well with SSASs since it was typically based on funds under management. It was always difficult to make a commission fee structure work with such products. But what has changed in the new post-RDR world, is that commission is off the table and fees should all be agreed upon from the outset. This could theoretically bring back advisers to SSASs, and we may perhaps see a revival over the next few years – particularly as property investments are heating up once again.

One thing that is for sure is that SSASs are not going away any time soon.