Clients expecting to retire and take money from their small self-administered scheme in January could find themselves unable to do so unless their scheme has met Mifid II rules.
Providers of Ssas, such as Dentons Pensions Management and Barnett Waddingham, have warned that unless trustees have secured a document called a legal entity identifier (LEI), any trades in equities and bonds from the scheme will have to be put on hold.
A client wishing to retire after 3 January next year, when the Mifid II legislation comes into force, may want to take money out of the Ssas by selling reportable financial instruments (RFIs) in the form of equity or bond holdings.
However, unless the scheme has an LEI in place, the investment manager cannot place any trades, and the scheme trustee cannot release money from the pension scheme for the client.
James Jones-Tinsley, self-Invested pensions technical specialist for Barnett Waddingham, and Martin Tilley, director of technical services for Dentons Pensions Management, have warned this could put clients at a disadvantage.
Advisers need to work with their Ssas clients to review the asset mix, to see which component parts come under the definition of reportable financial instrument. James Jones-TinsleyThe client must wait until the trustees have applied to the London Stock Exchange (LSE) for the document and the scheme has been registered.
However if markets have fallen in the intervening period, the scheme could lose money if the trustee carries out the trade in a down market.
It could also mean the end client may decide to hold off retiring or taking money from the pension scheme while markets recover - potentially putting them at a disadvantage.
An LEI is a 20-character identification reference number given to every legal entity that carries out financial transactions on regulated stock exchange to buy or sell financial instruments, such as shares, bonds, collective investment schemes and derivatives.
With the LEI in place, trustees would be able to make trades when they consider it is most advantageous to do so.
Mr Tilley explained: "The new LEI regulations will create a global data system to strengthen investor protection and increase international financial market transparency."
As pension schemes are legal entities, schemes active in these markets may be required to obtain an LEI from the London Stock Exchange by the 3rd January 2018 when the legislation becomes effective and pass it to their brokers and fund managers.
Some companies are willing to apply to the LSE on behalf of scheme trustees to help get the LEI put in place; others are relying on trustees to take the initiative.
Mr Tilley added: "If one is requested for any pension scheme we operate, an LEI will therefore need to be obtained. We are in the process of applying for those that currently need them."
Mr Jones-Tinsley commented: "It is the trustee's responsibility to obtain an LEI.
"It all hinges on whether or not the Ssas has within its asset mix a reportable financial instrument. If it does, it needs an LEI.
"The trustees will therefore either need to go to the London Stock Exchange directly, or perhaps they have links with a discretionary fund manager, who could get one on their behalf."
Advisers will need to work with clients and scheme trustees to check whether the pension scheme falls under the requirement for the document.
Mr Jones-Tinsley added: "The requirement will vary from scheme to scheme so advisers need to work with their Ssas clients to review the asset mix, to see which component parts come under the definition of reportable financial instrument, then the adviser will have to work with the scheme trustees to make sure the scheme gets one."
Key facts:
How much does it cost?
The London Stock Exchange fees are £115 plus VAT initial and £70 plus VAT a year.
How is an LEI obtained?
This is done online HERE.
Mr Tilley also said putting an LEI in place will mean additional costs for the scheme.
According to Fiona Tait, technical director for Intelligent Pensions, this is an example of how there are many tiny details in the Mifid II legislation that will have a significant effect on pension schemes - but the information about these has been sparse.
She said: "It is really hard to find information on how Mifid II may affect Ssas and self-invested pension schemes, and this lack is something that we are having to grapple with.”
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