Regulator admits Ssas rules need overhaul

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Regulator admits Ssas rules need overhaul

Industry figures are calling on the government and HM Revenue and Customs to bring back pensioneer trustees to regulate Small self-administered schemes, as a move The Pension Regulator has admitted would stave off scammers.

HMRC has been told to restore the requirement for Ssas to have a pensioneer trustee following their abolition on A-Day in April 2006, in a bid to slash the amount of pension fraud taking place.

In April 2006, HM Revenue & Customs changed the rules so that Ssas schemes no longer had to have a pensioneer trustee in order to operate.

Pensioneer trustee is a status conferred by HM Revenue & Customs on individuals or firms with specialist knowledge in the area of pensions law and pensions administration.

The role of the pensioneer trustee typically involves the establishment and administration of self -administered pensions.

Since HMRC scrapped the mandatory requirement for pensioneer trustees, followed by former chancellor George Osborne granting pension freedoms from April 2015, Martin Tilley, director of technical services at Dentons, said a growing number of Ssas were now falling foul of scams.

Speaking to FTAdviser, a spokesperson for The Pensions Regulator admitted "the resurrection of a requirement for pensioneer trustees would greatly reduce the risk of Ssas' being a vehicle of choice for scammers, who often market them as ‘products’ offering esoteric investments and unrealistic returns".

But they added: "For pensioneer trustees to truly mitigate the risk of small schemes being used as scam vehicles, careful thought would need to be given to the approval and regulation of those trustees, and the capacity of a suitable regulatory body to take on that task."

Mr Tilley said an increasing number of Ssas members, without the guidance of a pensioneer trustee, are also finding they have broken pension tax rules and being hit with an unexpected bill from HM Revenue & Customs.

As a result, Mr Tilley said it was vital that the requirement for a Ssas to appoint a pensioneer trustee is re-instated.

Mr Tilley said: "When this role was removed, many Ssas clients, who had seen the need for the pensioneer trustees as a necessary evil, chose to remove them to save costs, choosing instead to go it alone.

"The problems they encountered were that at the same time as the removal of the pensioneer trustee role, HMRC moved from a system of discretionary approval of pension schemes to one of registered pension schemes."

Mr Tilley said many self-run Ssas fell foul of the new rules as those that had removed or sacked their professional trustee were trying to do the administration themselves, but without knowing all the HM Revenue & Customs reporting rules or criteria where certain assets are acceptable and they quite often made mistakes that were causing tax penalties. 

In some cases HM Revenue & Customs tax penalties can be up to 70 per cent of the monetary value of the misdemeanours.

"The other issue that faced HMRC was collection of the tax penalty. This was always an after the event issue. Often it was impossible to track down the perpetrators of the taxable penalty as the money in the scheme had long gone and the trail was cold."

Mr Tilley said this became the hunting ground of pension liberators who played on the HM Revenue & Customs weakness of having to collect in arrears any tax or penalty.

"If the old role of compulsory pensioneer trustee was reinstated and this party was a trustee and signatory to scheme accounts, they could prevent liberation, prevent taxable errors or investments occurring saving the clients tax penalties and preventing the need for HM Revenue & Customs to waste resources trying to chase down often small taxable sums when penalties do occur."

Last month, industry figures called for tighter regulation of small self-administered schemes in a bid to prevent further activity by scammers.

In October last year, Phoenix reported it had prevented £26m of pension fraud to date, with almost £2m-worth blocked since pension freedoms were introduced in April.

Richard Mattison, director at Whitehall Group told FTAdviser the removal of pensioneer trustee legislation was a "silly mistake".

He said: "The removal of the pensioneer trustee role at A-day was one of the fundamental mistakes of the Treasury, it was a major mistake, that they just will not accept."

He blamed European Law for the change, "because many European countries don’t recognise trusts as a legal entity, so therefore you can’t recognise a trustee as having a role - that’s why they introduced the role of the scheme administrator instead".

He added that as part of this they allowed the administrator to be a non-professional entity, adding it was the mistake that just opened up the Ssas market, and also the Self-invested personal pensions, to a combination of abuse and incompetence.

"It could all be cleaned up almost immediately if the requirement of the professional scheme administrator was reintroduced and the professional scheme administrator has been approved by HM Revenue & Customs, or the pension scheme administrator so there was a list of full administrators available somewhere which is how it used to be with pensioneer trustees."

Neil MacGillivray, head of technical support at James Hay Partnership backed calls to bring back the pensioneer trustee regulation.

"Sipps and all that have to be regulated - Ssas don’t - and a lot of people who would be opposed to tightening up the Ssas market because that would impact on their businesses.

"At the end of the day if you are dealing with people who are dealing with large amounts of money you want to make sure they are trusted, so there is a very strong argument for it, and the reason it can’t happen is because of European legislation."

He added this might change following Brexit.

HMRC said the reintroduction of the requirement was a matter for The Pensions Regulator.