Advisers still shy away from small self-administered schemes because of limited opportunities to earn money from them, according to Whitehall group director Richard Mattison.
Speaking to FTAdviser, Mattison said the purpose of Ssas’ is really for company directors and business owners, stating they are appropriate for the entrepreneurs because of the flexibility that they provide.
“You can't get a more flexible type of pension scheme in this country and they're still specialist and still niche,” he said.
“They're not a mainstream product and a lot of advisers don't seem to understand them. They basically shy away from them, find them too complicated and they don't see how they can make money out of them so a lot of advisers would almost discount them as well.”
Mattison argued there was a lot of scope within the product for flexibility that you were unable to get anywhere else.
“There is no other pension product like this, where you get all these tax benefits that you get from a registered pension scheme and they can do all this other stuff at the same time.” he said.
“I feel that [advisers] do not see where they can earn money. The standard way that an adviser earns money for pensions is sticking on a platform and picking up half a percent per year, plus a bit of stuff around the edges of transfers.
“They don't see Ssas as being platform friendly products because clients are doing other things with the money, buying properties and making loans so if they don't see platform potential, they don't see the earnings potential.
“They either just don't bother with it or they don't recommend clients have that kind of product where it may well be the right product for them.”
Mattison argued that advisers will often say they do not offer Ssas as they are not suitable for clients.
“The idea is that not only do they do commercial properties, but they do loans to client businesses, loans to third party businesses, private equity in clients’ companies and in other companies. This is the unusual stuff that Sipps used to do, but don't anymore and Ssas still do.”
But chartered financial planner Greg Neall of Wake Up Your Wealth argued that while Ssas’ were typically sold for up front tax benefits for property purchase, it was still a retirement plan for all those concerned and an exit strategy had to be agreed.
“Whenever I have shown clients the tax benefit over the lifetime of the main business owner, including sale of the property and payment out of benefits, the tax savings have not outweighed the complications, costs and liquidity risks and none of them have ever proceeded,” he said.
“My view is that Ssas fall into the same category as transitional tax free cash protection: they are a niche and obscure solution resulting from near obsolete legislation, which deliver a miniscule benefit to consumers across the industry, and they should be got rid of to make the world of pensions simpler for all.”
Family plan - to be or not to be
Some have labelled Ssas as a solution to act as a family pension plan due to its capability of having multiple members.
Mattison said: “With Ssas’, there are many occupational schemes so you can have multiple members and they are the perfect structure for the family pension scheme, which is an underused strength of the product.
“You can have 11 family members but if somebody dies, you can have unlimited beneficiaries, which means that the product can cascade down the generations. We have a number of clients that do that and these schemes tend to build up to being quite large in terms of the fund size.”
Funds can sometimes be £10bnn plus where one adviser is running the family scheme or overseeing it.
“Everybody gets together once a year for a big family meeting to review the investment performance and the investments can be spread across a whole range of different things or they could all be invested through one managed fund or one discretionary managed fund for the whole family.”
But Penney, Ruddy & Winter chartered financial planner David Penney argued otherwise.
“I can’t see how it works better as a “family pension scheme” than a series of Sipps, unless it was a family business where the pension scheme owns the commercial premises,” he said.
“It’s an additional lawyer of fees, complexity and trustee duties that most people don’t need in my view.”
Likewise Neall, said: “The advantages of a Ssas compared to other products for a family run business are really few and not quite as they seem.
“A family with an unencumbered house can raise a loan back to the company from the Ssas against the security of the property, and the rate of interest can be favourable. This loan back feature is the only real advantage over a Sipp or group Sipp arrangement.”
Neall said some argue that you can minimise cost because you can set up your own trust and scheme registration.
“This is only really true if either you have someone with the appropriate skills within the company/family or the assets of the scheme are very significant so the flat fees incurred are low as a percentage compared to a Sipp provider where you will probably pay a percentage custody charge,” he said.
“The pooling of funds and inclusion of family members is sold as an attractive feature, but I see them as red herrings. What if not all the family work in the business, do the non-working members deserve the same pension? If you have numerous members, will they all agree on the same overall investment strategy?”
He explained that in reality, the head of the family or the company tends to make the decisions, and the other employees or family members may agree against their better judgement.
“Over the years, these situations can easily descend into conflict,” he said.
sonia.rach@ft.com
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