Small Self Administered Scheme  

Advisers face 'painful times' as transfer rules arrive

Advisers face 'painful times' as transfer rules arrive

Advisers will need to manage client expectations, as the latest anti-scam transfer rules are likely to make small-self administered scheme processes “considerably more drawn out”. 

The new rules, which came into force at the end of November, are likely to have a big impact on Ssas’s, according to Martin Tilley, director and head of technical and compliance at Westbridge.

Clients wishing to transfer their pensions into a Ssas, or even other pension wrappers, could have "painful times" on their way, Tilley warned.

This is because ceding schemes will be able to determine or interpret their own criteria for flagging a transfer and triggering a referral to the MoneyHelper service which could then end up overrun with requests.

Potential triggers for flags could be 'high risk investments', defined simply as 'high end of the normal range of risk in the current financial market', Tilley explained.

This could cause particular issues for Ssas's.

"Let us suppose that the transfer is to a Ssas where the funds are intended to be invested in a commercial property, leased to a connected third-party tenant, and offering a yield of 8 per cent per annum," Tilley said. 

"Will the ceding scheme trustees be forensically examining the financial strength of the tenant and therefore the security of the tenancy and therefore the yield? Will the trustees have sufficient market knowledge of the industry and the expertise of the tenant in the market in which they operate. And will the costs of the Ssas be assessed and split in proportion to the transfer value against total scheme assets to determine whether 'high fees' will also be an issue?"

Tilley said this meant trustees would be incentivised to raise a flag more often than not, out of an abundance of caution, which could be detrimental to legitimate Ssas transfers.

The rules removed the statutory right to transfer. 

Trustees are now expected to block transfers if certain ‘red flags’ are present, such as individuals being pressured to transfer.

In addition, they can raise an ‘amber flag’ if they suspect a potential scam, which will mean the member will have to provide evidence they have taken specific scam guidance from the Money and Pensions Service before they are allowed to transfer.

Trustees will also have to identify which schemes will require additional considerations, with Ssas’s falling into this category.

Tilley said: “As a long-standing favourite of the scammer, Ssas’s were beginning to enjoy a resurgence of popularity following the rather ill-conceived comments of then-Pensions Regulator executive director Andrew Warwick Thompson [who, in 2017,] suggested that ‘pension transfers to Ssas arrangements ought to be banned’. 

“Whilst the new regulations effective from November 30 do not ban transfers to Ssas’s, they do make them considerably more drawn out and therefore there is a need to manage client expectations.”

Tilley said there was also the matter of timing, with HM Revenue and Customs previously coming under fire for taking too long to register Ssas schemes.