To say there has been a sizeable change in pensions would be an understatement. Enough has been written about the pensions freedoms and the effect they could have on advisers and clients, but there has been much less focus on the different retirement planning options available while saving.
The small self-administered scheme (SSAS) is a foundation to retirement planning for many wishing to invest in a multitude of assets while not being as heavily regulated.
Historically seen as the more complicated sibling to the self-invested personal pension (Sipp), a SSAS is a form of occupational pension scheme run by an employer for a select number of its directors, a SSAS is a smaller and more exclusive product, where the founder of the scheme acts as the trustee, and the membership is limited up to a maximum of 12.
SSASs provide great tax benefits, and will keep those benefits regardless of what happens to the tax levels, so a scheme administrator could be key to help achieve those benefits, rather than a do-it-yourself approach where members could lose out on options.
Additionally, a SSAS is not a product regulated by the FCA, but there are rules set to be followed from the Pensions Regulator (TPR). A key element for using a regulated provider as an administrator is that the provider is accountable to the FCA.
Despite the benefits, the SSAS market has remained relatively stagnant over the years, never growing by a large amount. Claire Trott, head of technical support at Talbot & Muir, says she is still seeing keen interest in SSASs, but advisers still seem “scared” of the product, and fail to see how they are now more user-friendly than they were in their earlier years. She adds that SSASs are a good product specifically for succession planning, particularly post-pension freedoms.
Sorting out the scams
For Kevin Phillips, director at DP Pensions, pension scams are a huge issue for the industry. “SSASs are proving to be a very popular product for scammers as they are not regulated, don’t require a professional trustee and are exempt from a lot of the Pensions Act requirements. We have certainly seen an increase in transfer attempts to such schemes and this activity has the potential to seriously tarnish the SSAS industry.
“Clients must be made aware of the risks. It is for the adviser and transferring scheme to carry out detailed due diligence on the receiving scheme. That due diligence must cover areas such as the identities of the employer, trustees and other professionals, the relationship between the member and the sponsoring employer, and the investment strategy of the scheme. The recently introduced ‘fit and proper’ test that HMRC applies to SSAS administrators will go some way towards controlling this, but won’t help with the many schemes that are already in existence.”
AJ Bell’s response identified the continued use of “pseudo-SSASs” for pension liberation purposes as an issue it would like to see addressed in coming years. Anne McKenna, SSAS consultancy manager at the group, says it is “annoying” to have to suggest the schemes are linked to genuine SSASs. “It harms the market, but it can’t be denied that a common structure used for attempted pension liberation is similar to a SSAS.”
She adds that while the industry and regulators have made efforts to control it, and there are some signs that the controls put in place have had some effect, the bulk of suspicious transfer requests AJ Bell continues to see are schemes that have been established in a way to make them look like genuine SSASs.
“Pre A-Day there was a requirement for a professional trustee to be appointed for a SSAS and I think we are reaching the point where this requirement needs to be re-introduced. Failure to do so means that the pension savings of many individuals remain at risk from the attention of fraudsters, she says.
Robert Graves, head of pensions technical services at Rowanmoor, believes that stringent due diligence on any investments that member trusts wish to make can help provide a robust model and assist the prevention of pension liberation fraud. “Other SSAS business models exist whereby non-pension professional entities may act as the administrator and trustee, which we consider a risk,” he adds.
The survey covers 32 providers and all figures are as at 1 December 2015, unless specified otherwise.
Table 1 looks at the sizes of each provider, by number of schemes and total funds under management. All data is for the year to 1 December for 2015’s figures, and for the whole calendar year in previous years.
The total size of funds under management has fallen slightly on last year’s figures – from £17,315m to £16,894m – but this could just be attributed to the lack of disclosure from some providers, rather than the actual amount falling. Despite this, the total number of SSASs has risen slightly since last year, from 16,362 schemes to 17,751 in 2015.
But, it should be kept in mind that one of the largest providers, James Hay, did not disclose its figure. James Hay is the third largest provider by size after Barnett Waddingham and Rowanmoor, with £2bn in funds under management, so it can be assumed that it would account for a large portion of total number of SSASs.
One notable figure comes from Hornbuckle, which saw its assets drop from £580m to £400m – a loss of 30 per cent. If comparing with last year’s printed survey, it should be noted the group had previously provided incorrect data for 2014.
The Table also takes a closer look at the number of schemes set up. As with previous surveys, there are many non-disclosures when it comes to this section. In order to generate a better idea of how many SSASs were set up in those years, we have sourced some figures from 2015’s survey for years that were not disclosed in this year’s survey responses. These figures have been marked in the Table with an asterisk. Of those disclosed, the figure stood at 752 for 2014, but taking into account figures from last year (although this is to 1 December 2014), the estimated figure is actually 1,213 schemes set up in the year. For 2015 to 1 December, 1,165 schemes were set up, although there were also many providers which did not provide us with a figure.
Charges and services offered by a pension provider can be key for advisers, with many looking at these elements before anything else. Table 2 details these areas, including initial and annual fees as well as charges for buying property – one of the key aspects of a SSAS, much like their Sipp counterpart.
On the whole, fees have not changed drastically in the past 12 months, although some providers have either increased or reduced their charges. Hornbuckle, for example, has detailed its initial fee as £300 to set up or £1,000 as a takeover – last year its figure was just £700, so many customers will benefit from this reduction, which comes into action on 1 February. Rowanmoor’s initial fee has also slightly increased from £1,150 to £1,160 this year. Elsewhere, new Talbot & Muir customers will be pleased to see its initial fee has halved from £1,500 to £750.
Annual fees have also changed slightly for some providers. James Hay has altered its fees for clients from £400 plus £100 per month and capped at £650 for five members and above. This year, its fees are £750 for one member, £950 for two, £1050 for three, £1,150 for four members and for five or more, the annual fee sits at £1,250.
Table 2 also looks closely at charges for buying property, something which is a large factor of SSASs, as with Sipps. In general, fees haven’t changed drastically in the past year, although there have been some minor changes. Day Cooper Day has amended its fees from £350-900 to a flat £400 when buying commercial property, while James Hay has increased fees from £500 to £750. A property purchase fee from Rowanmoor will save clients now, as it has dropped from £725 in 2015 to £600. Next year’s survey will ask providers for more in-depth fees for property for advisers to get a better idea of figures behind the headlines.
Table 3 shows the different types of SSASs available from each provider. All providers offer full SSASs, but just a handful offer others. This Table is similar to last year, in that few offer a hybrid, 90/10 (where 90 per cent of assets are invested in insured funds) or a deferred SSAS (which is invested wholly in insurance company pension funds). Scottish Widows offers a hybrid, as does IPM Trustees and Old Mill, who both also offer deferred SSASs.
A 90/10 SSAS is rare, as it is a historical fund, but Yorssas still offers the type of scheme – as well as full and hybrid options.
Future of the market
What the future of the SSAS market holds remains to be seen. But Talbot & Muir’s Ms Trott says it could be strong. “I can see the benefits of SSAS continuing to be recognised wider and wider in the adviser space or for family businesses wanting to buy their commercial premises within a scheme.” She adds that the pension reforms place SSASs in a great light for the flexibility of benefits and succession planning that is now even greater with the death benefits options introduced in 2014/15.
“Often SSASs are set up for a family-run company and hold the company premises. This historically could have caused a really big issue on death because it would possibly mean the property would either need to be bought back by the company to pay the death benefits or even sold to a third party. The ability to nominate non-dependants to continue to receive an income (even if nil is taken), rather than having to sell assets to get death benefits, means they have a longer shelf life for the company, removing the additional burden on the company at a time that will be traumatic enough,” she explains.
She adds younger members can join the scheme, making contributions while older members can draw income, making it very flexible without impacting the stability of the core assets. This, Ms Trott says, gives a great way to help plan the future of the company and provide a long-term savings vehicle that can cascade down the generations.
Mark Canning, head of business development at Yorssas, also believes that there are opportunities when it comes to succession planning. “We believe that the SSAS market is buoyant at present and is experiencing a significant upturn in interest. We believe this is primarily driven by increased awareness of ‘pension-led business funding’ options, coupled with enhanced succession planning opportunities brought about by the pension freedoms changes earlier in the year.”
Freedom to flourish
The pension freedoms are a key area where SSASs may flourish. But can also bring a burden. Jeff Owens, a partner at Bespoke, says “The new pension freedoms have taken up much of our time this year. We have had to explain the relevance of those many changes to individual clients and prepare the way to update all client scheme rules and governing documentation to ensure that clients can take advantage of the new freedoms as and when appropriate.”
However, after an “initial flurry” of enquiries, Mr Owens says he has had fewer than expected clients wishing to withdraw substantial parts of their funds under flexi-access.
A year has yet to pass since April 2016, and it is still not clear how much the pension freedoms have affected the SSAS market. However, if the figures from 2015 are anything to go by, the market is still slowly growing, albeit not at the pace of Sipps. One way around this could involve being clear on cost from the beginning and making sure advisers know that SSASs are not as complicated as they once were.
SSASs can make up a solid foundation for retirement planning, particularly for those wishing to invest in commercial property and clients who want a good succession planning base. So regardless of what happens in pensions regulation, SSASs look set to stay.
Note: This article was updated on 29 January 2016 to correct data that had originally been wrongly inputted regarding Rowanmoor.
