It’s often claimed that the stable door is only closed after the horse has bolted. When it comes to self-invested pensions, this could certainly be said of the regulator and revenue.
In fairness to the aforementioned, I suspect their processes require evidence of widespread misuse and/or abuse, and the impact on the market or Treasury before they can act.
Having taken on the regulation of Sipps more than nine years ago, it is to be hoped that the watchdog has got regulation well under control, with responsibilities for asset acceptance now firmly in the hands of regulated Sipp operators. There should be little scope for tax abuse or, and in particular, inappropriate investment vehicles.
Sadly, no similar regulatory model applies to SSASs, to which scammers and tax liberators have now turned their allegiance.
Through their constitution, SSASs still permit member control via their role as member trustees. Once monies are transferred into a registered SSAS there is no authorised or regulated body to stop the member(s) doing exactly what they wish with the scheme assets.
Certainly, there are financial penalties if unauthorised payments are made from the fund that is not sanctioned by the governing deed or the HMRC rulebook, but these disincentives will apply only after the event has occurred, at which point the perpetrators are typically long gone.
Few, if any of us, will have any sympathy for those knowingly flaunting the rules. Of greater concern are the genuine, gullible or naive individuals whose pension savings are lost in harebrained investment scams. Their only crime is having been too greedy or too trusting.
So how have we got here, what are the issues, and what is being done about it?
Governance
Firstly, let’s tackle regulation. The FCA does not regulate SSASs, which are trust-based occupational pension schemes. Regulation comes in the form of The Pensions Regulator (TPR), but a scheme is only registered with them if it has more than one member. By their own admission TPR do not have the resources to police around 50,000 individual SSASs.
Probably a better word for the overseeing of SSASs is governance, which lies in the hands of HM Revenue & Customs. They were ably assisted up to 2006 by the role of a pensioneer trustee, whose responsibility it was to ensure that the scheme was not wound up, other than in accordance with scheme rules. Those that did the job well also acted as a proactive co-signatory to the scheme affairs and were therefore able to prevent inappropriate actions by member trustees, and could at least lend an experienced ear to any investment propositions.
Sadly, the role of pensioneer trustee was removed in 2006 with the move from discretionary approval to the registered scheme regime. Apparently the role of a compulsory trustee does not sit well with some European Union legislation.
In the latter half of 2016, HMRC stated it had no plan to revive the role, despite TPR’s statement that “the resurrection of a requirement for pensioneer trustees would greatly reduce the risk of SSASs being a vehicle of choice for scammers who often market them as products offering esoteric investments and unrealistic returns”.
However, HMRC has introduced several measures to combat the problem of SSAS misuse. From September 2014, the revenue has made it a requirement that a fit and proper scheme administrator be in place at registration and throughout the life of an occupational pension scheme.
The responsibilities of an administrator are numerous, but in particular they will be expected to understand the reporting requirements and tax legislation necessary to fulfil the role. If HMRC has reason to believe the administrator is not fit and proper, the scheme’s registered status can be removed and subsequent tax penalties would be incurred.
Sadly, even between professional administrators, the role varies and there is no requirement for it to overlap with the role of trustee or for it to include influence over investments made within the scheme.
In itself the fit and proper administrator does not solve all the problems, and even where legitimate SSAS investments are made such as loan-backs, incorrect documentation could still result in tax charges.
The registration process itself has also evolved. The online registration process often resulted in almost instantaneous registration, but since 2014 HMRC has been enhancing its checks in advance of registration procedures.
Administrators will now receive a supplemental request for information that targets details of the introducer or promoter of the scheme, the employer, the intended investment and any parties involved in the administration of the scheme. Latest proposals
A further consultation was released in December as part of Project Bloom, a cross-government taskforce intending to tackle all of forms of pension scams. The document sets out key areas where it believes that direct intervention is necessary.
Limiting the statutory right to transfer:
Under current legislation, even where a transferring scheme believes the transfer is to a fraudulent scheme and thus jeopardises the safety of an individual’s pension savings, it is largely powerless to refuse the transfer.
The latest proposals state that while a statutory right to transfer should still exist, it would apply only in circumstances where the receiving scheme was either a personal scheme regulated by the FCA, where there was a genuine employment link to the new scheme, or where the receiving scheme was an authorised master trust.
Making it more difficult to open fraudulent schemes:
In addition to the measures already taken, it is proposed that the law be changed such that new pension scheme registrations can be made only through an active (non-dormant) company. The consultation asks what additional actions might be necessary, which appears to open the door for suggestions such as the reintroduction of a regulated body necessary for initial and continued scheme registration.
A ban on cold-calling in relation to pensions:
Some 97 per cent of pension liberation cases brought before the Citizens Advice Bureau originated through cold-calling. I’d warrant that many readers of this article would at some point in time have been offered a ‘free pension review’ claiming their current pensions are ‘underperforming’.
Current cold-call restrictions apply only to FCA-regulated parties, so miss the culprits of liberation or scam-investment proposers. The document proposes a ban on all cold calls relating to pensions to be brought in through primary legislation. Legitimate calls, where a request for information has been made for information, will be excluded from the ban. Sadly, the government does not have the power to ban calls made from overseas where the calling company is not registered in the UK.
With these measures, coupled with any other ideas from the industry that are asked for in the consultation, the government hopes the message to consumers will be clear. Through the publication of these actions and promoted education through other parts of Project Bloom, consumers will be sufficiently informed to ensure they do not engage with promoters of inappropriate schemes or investments.
Ian Stewart is joint managing director and pension consultant at Dentons Pension Management
