Small Self Administered Scheme  

Pension scam rules set to destroy Ssas market

Pension scam rules set to destroy Ssas market

The pension scams regulation could seriously impact the small self-administered scheme (Ssas) market, as transfers could be halted due to the new rules and schemes can be de-registered due to dormant employers.

The new rules, which were announced last month, aim to prevent fraud in pensions and include tougher action to help prevent the transfer of money from legitimate pension schemes into fraudulent ones.

The new rules require trustees to check their receiving scheme is regulated by the Financial Conduct Authority (FCA), or has an active employment link with the individual, or is an authorised master trust.

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Richard Mattison, director at Ssas provider Whitehall Group, said a proportion of people wanting to transfer their pots into a Ssas might be prevented from doing so as a result of this requirement.

He said: "Ssas are for business owners, and these individuals do not always draw remuneration from their companies. So, there might be no way of establishing this employment link."

Martin Tilley, director of technical services at Dentons Pension Management, agreed the new rules need to be "surgically accurate to prevent it impinging on legitimate transfers".

He said: "The transfer process is likely to be slowed considerably whilst transferring schemes assess whether a transfer can or should be made.

"I foresee problems where a transferring scheme will simply refuse a transfer, rather than make an informed decision requiring considerable investigation and resource costs."

Mr Mattison said the consultation response mentions that transfers can be made on a non-statutory basis – which means the "transferring provider will have discretion to allow it or not."

Nevertheless, providers are already imposing this practice before it is even legislated, as they are "insisting on receiving evidence of earnings before allowing a pension transfer," he said.

The employment link concept, however, has not been fully developed yet, and the government might introduce specifications to prevent this problem.

A spokesperson at the Department of Work & Pensions (DWP) said: “As we work to bring in the pension transfer limitations, we will continue to engage and work with industry and other stakeholders on how to implement this change."

How this collaboration will work is yet to be confirmed, the spokesperson added.

Ssas providers had at least £17.5bn in assets under administration at 1 December 2016, according to Money Management’s special report on this market.

Barnett Waddingham is the biggest Ssas provider, with £4.1bn in assets and 2,253 Ssas.

Malcolm Mclean, senior consultant at the company, agreed that evidencing the employment link could be problematic.

He said: "The draft legislation will therefore need to include other ways of evidencing that the transferring individual is employed by the organisation that sponsors the receiving scheme.

"For example, making use of companies’ house records to evidence that they are an active director of the company, or expanding the types of remuneration received by the director to include dividends and other employee benefits-in-kind."

If these problems are not addressed there will be a drop in new business inflows for Ssas, Whitehall Group's Mr Mattison said.