PensionsJan 23 2015

SSASs: A flourishing market

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SSASs: A flourishing market

The much publicised and debated pension changes are sure to have an effect on many types of pension. But for the time being, any impact looks to be positive for the small self-administered scheme (SSAS) industry.

Even before the new landscape arrives, SSASs already come with flexibilities, in particular flexible drawdown options. But in recent years there has been a lot of change in the space, with many acquisitions reshaping the market.

A SSAS is set up as a form of occupational pension scheme, run by an employer for a select number of its directors. It differs from a Sipp because only company directors are able to set up a SSAS, and the schemes are limited to a maximum of 12 members – including the founder. The founder of the scheme also acts as the trustee, as opposed to Sipps, where the provider is the trustee.

All figures within this survey are as at 1 December 2014, unless specified otherwise. It covers 33 providers, with a few absences from last year and some newcomers. Both Bespoke Pension Management and Hornbuckle re-joined the survey after being absent in 2013, and new to the survey this year is Day Cooper Day. Meanwhile, Newell Palmer Trustees said it was no longer company policy to complete surveys and Channack Consultancy also declined to participate as it only “offers bespoke SSAS arrangements”.

Oval Trustees was bought by Talbot & Muir this year. Claire Trott, head of technical support at Talbot & Muir, says while there has been significant talk of consolidation in the Sipp market, she believes it has started – and is likely to continue – in the SSAS market too.

“The SSAS market is slightly different due to the fact that there is no need for a SSAS to be run by a pension provider. There are many advisers, accountants and companies themselves running one or a few SSASs and the impending and constant shifting of the pension legislation is likely to make many reconsider whether this is the right thing,” she says.

Making a profit

For those offering SSASs, but for which it is not core to their business, Ms Trott says now may be seen to be the time to sell their book to a larger dedicated provider.

“The changes are so significant that it may just be too onerous to continue to make a profit and provide the service SSAS clients require, which is truly bespoke but still needs to be efficient,” she adds.

Table 1 looks at the assets under management for all respondents. It also looks at the total number of SSASs this year and how many were set up in full for the past five years – data is for the year to 1 December for 2014’s figures.

Not every scheme provider disclosed all information – as with previous surveys – but an overview of those providers who did respond shows the total funds under management has increased by 27 per cent from £13.6bn to £17.3bn, and the average across each provider rose from £595m to £666m – an increase of 11 per cent.

The provider with the most funds under management is the same as last year – Barnett Waddingham, which has £4.1bn.

According to our figures, the number of SSASs grew by nearly 16 per cent, from 14,107 in last year’s survey to 16,362 today. The average number of SSASs across every provider is 528, an increase from 470 in 2013.

Standout figures come from Barnett Waddingham and Talbot & Muir, as both made acquisitions this year. Barnett Waddingham saw its number of schemes increasing having purchased Harsant Services, acquiring 70 SSAS books in August. And in September the group purchased Chase de Vere’s Sipp and SSAS business, adding 275 SSAS clients to its books. Talbot & Muir, as previously mentioned, acquired 188 new books from Oval Trustees.

Dentons also saw a slight increase in total number of SSASs, despite a drop in funds under management (from £958m in 2013 to £805m in 2014). The provider says it also set up 42 schemes, which means there were some ‘lost’ SSASs. This could be down to anything from member deaths, retirements or wishing to invest in assets the provider does not use.

Speaking about 2014’s figures, Dentons’ director of technical services, Martin Tilley, says, “To 1 December 2014, we saw a net gain of seven schemes in our SSAS book, with 30 SSASs being closed due to member deaths and retirements where benefit payments result in the liquidation and wind-up of the fund. In addition, we have resigned from schemes where clients have wanted to invest in assets that we believe would result in tax charges.”

“We also have a programme of actively reviewing smaller cases and those not utilising the facilities of a SSAS to determine whether a SSAS remains appropriate for the client. Last year this resulted in several SSAS wind-ups with funds transferred to more economical or appropriate vehicles including Sipps,” he adds.

As with other trends throughout the Table, the number of SSASs set up in 2014 to 1 December has increased. Throughout 2013, the number of schemes set up was 672 – a 37 scheme average across all respondents – while in 2014 (as of 1 December), the average number of schemes stands at 50 with a total of 1,139 – a 69 per cent increase.

Overhauling the industry

According to industry experts, the SSAS market should remain largely unaffected by April’s pension overhaul. Robert Graves, head of pensions technical services at Rowanmoor, says the new flexibilities will apply equally to SSASs as they do other forms of defined contribution schemes. “The SSAS target market is essentially limited to directors and key employees of a sponsoring employer and this market will not increase. We would expect personal pensions – including Sipps – to be the main benefactors of the changes. However, if the changes do engender a greater attraction to making pension provision then we might expect financial advisers to be considering the most suitable pension product, which should include consideration of a SSAS,” he adds.

Chris Smeaton, director of marketing at James Hay Partnership, says the changes from April also offer “exciting opportunities” to family-run businesses.

“The facility to pass on pension funds to non-dependants opens up significant succession planning opportunities because it will be possible to pass on the assets of the scheme to multiple generations with potentially little in the way of tax consequences.”

David Littlewood, director at Ebor Trustees, thinks the changes to allow freedom and choice will be appreciated by scheme members. “Of greater long-term benefit to scheme members could be the removal of the withholding tax on transfer lump sum death benefits. This will be of tremendous significance when a scheme has illiquid assets – such as commercial property – and a scheme member has no ‘financial dependant’. A new class of ‘nominated beneficiary’ will greatly aid continuity of schemes and the sponsoring business.”

Complex charging

As with any product, it is important to know what is being offered and the cost. Table 2 looks into a breakdown of what is available, along with charges from each provider for their SSASs. Charges differ greatly. Some scheme providers, such as IPM Trustees, say there is no initial fee, while others, such as Bespoke Pension Management, charge £1,760.

Talbot & Muir’s Ms Trott explains the charging structures surrounding SSASs are incredibly variable, making an initial comparison difficult.

“There are functions that need to be conducted annually, which are not necessarily member-dependent such as the annual return to HMRC,” she says. This is not always included in the annual fee, hence the headline fee could be very misleading to an adviser or client that doesn’t have a background in SSAS. Additional charges can easily add up, especially where they are charged on a per-member basis, some providers offer a set fee with additional annual charges for additional members, again making the cost at outset hard to gauge from just a fee overview.”

It is suggested to always acquire an estimate based on specific circumstances of each new SSAS taking into account any issues – such as who will be members, whether there will be property involved, borrowing and loanbacks as examples. Ms Trott says this will give a clearer overview of what the client can then expect to pay. “This will make comparisons with other providers – and possibly Sipps – easier to make and will also mean there should be no nasty surprises. Even where there is a time cost element, which is often the case, providers should be able to give ballpark estimates based on information provided.”

Many providers have a more complex charging structure than just one element to an annual fee, something Money Management hopes to investigate further in next year’s survey. A look at Barnett Waddingham, for example, shows its annual fees begin at £880, but a closer look at its fee schedule shows numerous additional costs. Accounting for tax return starts at £170, fund allocation charges begin at £240 and a review of income drawdown pension costs from £300 per member. It should be noted that this is just one random example of a provider with additional fees, and many others have different charges, so a fee schedule is an important tool when looking to set up a SSAS.

As fees differ and should not count as the be all and end all, the Table also looks at what each scheme offers. The Table shows whether companies offer independent trustees, scheme administration, in-house actuarial services, retirement planning advice, investment advice and general consultancy. No provider is the same and the Table illustrates the diversity between providers.

Table 3 looks into the types of SSAS available. Similar to last year, just a handful of providers offer models beyond a full SSAS. 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). As with last year, all but three providers offer just a full SSAS with no other alternatives. Hanover, IPM Trustees and Old Mill Group offer a hybrid and deferred SSAS option as well as a full SSAS. As with last year, no provider offers a 90/10 SSAS – a scheme where 90 per cent of assets are invested in insured funds and 10 per cent in non-insured assets such as unit trusts. A historical type of scheme, it is now rare to find a provider who offers it.

Adviser issues

As the Tables indicate, SSASs are still a major part of the pensions industry. But advisers need to be aware of many issues when choosing a provider.

Carl Lamb, managing director of Norwich-based advisers Almary Green, says because the levels of lending to small businesses in the UK are still low and there is a continued reticence by the banks to lend, this is putting great pressure on owner managers that want to grow their businesses. “We are seeing an increased number turning to a SSAS and the loan back facilities that can be used,” he says.

“Service is the priority when choosing an administrator. We would only use a firm that has years of experience and highly knowledgeable staff. We steer clear of any that have a high staff turnover, have SSAS products as a non-core part of business or continually change strategy. We need people focused on delivering high service levels, technical support and administration excellence,” he adds.

Cost is an element of choosing a SSAS administrator, but Mr Lamb says it isn’t the most important. “If you go for the cheapest option then you can end up with poor service and that can be detrimental to our clients and reflects very badly.”

New scheme administrator ‘fit and proper’ person rules came into effect on 1 September last year. The rules are amendments to the Finance Act 2004 and were initially meant to prevent or discourage pension liberation.

Ms Trott says the guidance was a “move in the right direction” to ensure SSASs are run in an appropriate and informed way. “It has been possible for many years for anyone to administer a SSAS, without any knowledge of the legislation that surrounds the scheme they are running.

“Although the main aim of the guidance is to give the HMRC the power to deregister schemes that are being run inappropriately and possibly with liberation in mind, it covers the issues of scheme administrators who do not fully understand pensions legislation and could cause harm to scheme members by this virtue alone.”

But while providers have largely welcomed the new legislation, there are still some concerns.

Lisa Webster, technical resources consultant at AJ Bell, says, “the introduction of the ‘fit and proper’ person test has been a welcome move in the fight against pension liberation, but has not resolved the issue of existing “orphan” schemes that are not being looked after properly.

She adds, “We do get asked to take on such schemes and it is becoming increasingly difficult where no one has kept on top of the administration, accounting records, fund splits etc. Occasionally such clients have unwittingly allowed a payment, for example by allowing a loan to their company without security.”

While the future shape of the pensions industry remains uncertain, one thing this survey has indicated is that the demand for SSASs is increasing. There do not seem to be any major concerns across the board for what the pension changes may mean for SSASs, and numbers are increasing as the years go by.

A SSAS will remain a popular choice for directors looking for an alternative pension scheme, and providers are more than ready and willing to accommodate them.