RegulationApr 26 2017

What will be the orphans' fate?

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What will be the orphans' fate?

Is a professional Ssas administrator warning about the dangers of “orphan Ssas” as narcissistic as the Great and Powerful Oz who, when the illusions were stripped away, was simply a self-serving wee man (as we would call him in the west of Scotland) hiding behind a curtain with nothing of real value to bring to the table?

I suppose the answer to that will largely depend on your experience, since the need for a professional administrator was removed.

My experience of orphans is that there are two distinct groups. The first is those clients with a Ssas who made the conscious decision to go it alone. They do not value the services of a professional administrator and/or they do not want to pay fees for it.

Then there are those Ssas clients who have found themselves without a professional administrator because of inertia; that is, they are clients who never sign deeds, never answer correspondence and may resurface when they realise they have a funds in a bank account they would like to access or an asset they want to sell.

Professional assistance

Whatever group these Ssas clients are in, I would argue with absolute certainty that they do need professional assistance with operating one of the most complex of the UK’s pension arrangements.

Not all, but most “orphan Ssases” will have been so since A-Day in 2006. There were thousands of Ssases who had not adopted post A-Day rules by the “simplification” deadline of April 2011 and logic dictates many of them will be orphans. 

Allied to that, the further changes introduced by the Finance Act 2011, which include among other things capped and flexible drawdown, mean it is inevitable that schemes were operating on rules not compliant with legislation. If benefits were taken on a post A-Day basis they would have been breaching scheme rules. If they were taken on the basis of the scheme rules, then they risked breaching legislation. A Catch-22 situation of Joseph Heller proportions.

There are very real consequences of not complying with legislation, all of which can be avoided with the right help. I am aware of a Ssas loan that resulted in a £55,000 tax charge despite the loan and interest being paid in full, because it was unsecured. 

Fit and proper persons 

The fit and proper persons test was introduced on 1 September 2014, with the aim of helping ensure Ssases were properly governed to follow all rules and regulations. This requires that anyone being appointed into the role of scheme administrator is indeed a fit and proper person. 

The 10-page guidance note states the person carrying out this role must have (or employ someone who has) a “working knowledge of pensions legislation” and is “capable of assuming the significant duties and liabilities of the scheme administrator”.  

The consequences of not being fit and proper are significant, going as far as de-registration.

I deal with Ssas trustees every day who are smart, savvy individuals running successful businesses. By engaging with a professional administrator they have recognised that pensions legislation is not their area of expertise and, as smart, savvy people normally do, to manage the risk they have placed that responsibility with an expert.

The introduction of the fit and proper person test will undoubtedly have reduced the number of schemes being registered for pension liberation purposes. However, it only applies to scheme administrator appointments since 1 September 2014. If you were in this role before that date then you will remain an approved scheme administrator until HMRC deems you not to be. 

How it would do that I do not know. Perhaps by reviewing anomalies in the annual registered pension scheme returns? These have been around for years so could be of use to HMRC. More likely it will be through a serious breach, by which time the horse will have well and truly bolted.

The removal of the need for a professional administrator at A-Day April 2006 and the introduction of this test some eight years later created a huge window of opportunity for scammers to register and as long as they keep their heads down/do not get caught, they are free to continue to operate as “fit and proper”. 

John Keenan is corporate development manager of Xafinity