The government’s pension scams consultation, launched on 5 December 2016, includes changes designed to make it harder for SSASs to be abused by pension fraudsters. Unfortunately, certain SSAS structures can be open to abuse by those wishing to sell esoteric investments to ordinary retail investors, or to sell scam investments.
SSASs and Sipps, in their bespoke guise, potentially offer a very wide choice of investments. However, in recent years, individuals looking to invest in the more esoteric end of the investment spectrum have found it increasingly difficult to do so via a Sipp. This has tilted the playing field towards SSAS to facilitate the needs of the more adventurous investor.
Sipps are, by far, the predominant product of the two. They have a wide eligibility criteria, and as a personal pension, they are essentially available to all individuals. SSASs, as occupational schemes, have a more limited traditional target market of directors and key employees of small businesses.
The key attractions of a SSAS are not only its use for providing retirement benefits, but as an effective business financial tool. This includes the unique ability to loan pension fund money back to the sponsoring employer, as well as offering an often more cost-effective and practical means of holding the business premises as an asset within a common investment fund.
While the features and benefits of each product will be considered according to each client’s needs, there can be other influences that shift the balance.
Esoteric investments
One factor that led to SSASs being favoured for esoteric investments was the impact of the FCA’s enhanced capital adequacy requirements on Sipp operators. Many esoteric investments are not readily realisable within 30 days and will therefore be classified by the FCA as non-standard, resulting in higher capital adequacy requirements on the Sipp operator.
The result is that individuals wishing to make speculative investments will have fewer Sipp operators to choose from. And it is the Sipp operator who dictates what investments it will allow to be held within its products.
By contrast, a SSAS is an occupational pension scheme, so it does not come under the control of the FCA and the investment choice is not affected by capital adequacy considerations.
More crucially, the structure of a SSAS is such that the scheme rules will govern the range of allowable investments and it will normally be wide. Where a professional SSAS provider is appointed as scheme administrator and trustee, alongside the member trustees, they can be expected to have a veto over acceptable investments. They will not want the risk of scheme sanction charges or other liabilities placed on them through inappropriate investments.
While many SSASs will have a professional provider as the scheme administrator, and thus provide a check against inappropriate investments, a SSAS can also be established where the sponsoring employer is appointed as the scheme administrator and the trustees of the SSAS are the directors of the sponsoring employer, who are in turn members of the SSAS.
The trustees are obliged to consider professional investment advice, but they may accept investments that a professional SSAS administrator may not.
Another factor impacting the adventurous investor is finding an adviser who is still prepared to advise them or operate on an execution-only basis. This has become more problematic as FCA regulation has hardened, compensation has increased and even PI insurance has restricted such activity.
Depending on the rules that emerge from the government’s consultation, the sands between Sipps and SSASs may shift again. While the retail client must be protected, scope to allow adventurous clients to invest their pension funds, as they consider appropriate, must be maintained.
Those shifting sands may end up with a landscape populated by a few specialist Sipp and SSAS providers who have the necessary expertise to provide such a service within a regulated environment, but with a large dose of caveat emptor placed on adventurous investors directing their investments as appropriate to their circumstances.
Robert Graves is head of pensions technical services at Rowanmoor
