Small, self-administered pension schemes have soared in popularity during this Covid-19 crisis thanks to their loanback feature, specialists have claimed.
Ssas provider Whitehall Group said Ssas registrations in the first 10 days of April alone were almost eight times higher than figures reported for January as more people became aware of the loanback facility.
The number of loans completed more than quadrupled in April on January’s activity. Similarly, Mattioli Woods and Dentons have also seen more enquiries.
Richard Mattison, director at Whitehall Group, said: “Ssas can be used in different ways to work with businesses, and on the back of lockdown we have witnessed a spike in activity.
“People who have got properties or assets in their Ssas which they can use as security are turning to loans to provide capital to the company. With borrowing rates for Ssas at rock bottom, it is an attractive solution to businesses who need finance badly.
“Advisers that understand Ssas and how they work are keen on these schemes, and are approaching us looking into loanback options for their clients.”
A Ssas can provide loan finance back to a connected business, up to 50 per cent of the total amount of cash held and the net market value of the scheme’s assets. This cash injection may look attractive in this economic downturn.
Whitehall Group's Ssas activity levels in 2020
| January | February | March | April – Ongoing cases | |
| New Ssas set-ups | 11 | 19 | 21 | 85 |
| Retirement crystallisations | 10 | 4 | 11 | 25 |
| Property purchases | 1 | 10 | 5 | 59 |
| Loans | 11 | 10 | 13 | 47 |
Source: Whitehall Group
The increased popularity reverses the trend of recent years, which saw the schemes’ standing among advisers dwindle after a series of scams damaged their reputation. Ssas are not regulated by the Financial Conduct Authority.
Doug Ryan, wealth management director at Mattioli Woods, warned the suitability of a Ssas should be carefully considered by an adviser rather than purely established to create a loan.
Mr Ryan said: “We have always orchestrated loans to ensure that finances are protected and that companies not necessarily survive but, more importantly, develop.
“The trustees of the scheme will need to be careful because, ultimately, if they are risking pension money that is meant to be for retirement, real consideration needs to be given to whether or not the loanback is a good investment for the pension scheme to make.”
Martin Tilley, pensions director at Hurley Partners, agreed that while loanbacks were a unique selling point, they must be executed properly or members could lose out.
HM Revenue & Customs rules state loans made to the sponsoring employer will qualify as an authorised payment as long as five key tests are met, including: a five-year minimum term; interest rates must be at least 1 per cent above the current bank base rate; and the loan cannot be more than 50 per cent of the Ssas’ net assets.
Mr Tilley warned if trustees do not document a loanback property and if the correct securities are not in place, the loan does not qualify as a loan and instead becomes an unauthorised payment on which tax charges apply.
Another risk is that to receive a loan, the scheme has to disinvest some of its assets or funds – a requirement that may prove testing given the ongoing volatility in asset prices.
Mr Tilley said: “While it may look like a good idea to get money into the business, if you are crystallising a 25 per cent loss in the pension, if markets go back up, and you miss that upturn, you could have cost yourself by taking the loan from the pension fund, rather than a bank.”
Timescales must also be considered. Whitehall Group’s Mr Mattison said delays in securing finance from banks had resulted in some clients turning to Ssas for loans.
But Stephen McPhillips, technical sales director at Dentons Pension Management, said structuring a Ssas loan can take longer than first thought.
Mr McPhillips said: “It can take time for HMRC to accept and register a new Ssas – and no money can be paid into the Ssas until HMRC does.”
amy.austin@ft.com
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