Advisers and providers of small self-administered schemes (Ssas) have hit back at a proposal by The Pensions Regulator to ban the setting up of new Ssas, with one specialist adviser describing it as "drastic and unreasonable".
Yesterday (14 February), TPR executive director Andrew Warwick Thompson urged the government to consider an outright ban on setting up Ssas, to end what he described as the "flagrant and often criminal abuse of the Ssas regime".
He claimed the almost total lack of regulation meant Ssas were an "open goal" for would-be pension scammers.
But Lucie Gee, a Ssas and Sipp specialist with London-based advice firm Westminster Wealth Management, said a ban was unnecessary and would hurt small and medium sized business owners.
She argued that a well-run Ssas had an independent trustee, "which allows control", as well as a competent scheme administrator to ensure the Ssas is run in line with pension rules.
She said that a good Ssas administrator will do due diligence on the limited company that sponsors the scheme, adding that many providers looked at non-standard investments for Ssas "in the same way as they do Sipps".
"It would be a drastic and unreasonable measure to ban transfers and stop establishment of new schemes," she said,
"A more suitable action, would be to regulate Ssas like Sipps to ensure that clients are protected and their pension schemes reported correctly to HM Revenue & Customs."
Claire Trott, head of pensions strategy at consultancy Technical Connection, said TPR was failing to acknowledge the positive aspects of Ssas.
"What those who aren’t actively involved in Ssas don’t often see is the benefits that they can bring to a small company and their owners, by allowing them to fund for retirement at the same time as build their business," she said.
"Ssas have many great benefits that would be lost should they be banned outright."
One such benefit was the flexibility to jointly invest in commercial property for use by the sponsoring employer.
"This can be cheaper and easier to manage as it is a single fund and entity involved in the purchase unlike multiple Sipps," she said.
Another benefit, she said, was the flexibility when dealing with large assets such as a commercial property when a member dies.
"Should this have been in multiple Sipps then the administration and costs involved in possibly splitting the asset into further pension pots can be a significant issue at a time that is unlikely to be convenient to the remaining investors," she said, adding it could result in the sale of the property.
The third benefit she cited was the capability for the scheme to make a loan of up to 50 per cent of the asset value back to the sponsoring employer.
Andy Bowsher, director of self-invested pensions at Xafinity, agreed that a ban was unnecessary to prevent scammers from exploiting the light-touch regulation of Sipps.
Instead, he argued HMRC should create an "approved list" of professional scheme administrators, such as Xafinity
"Those currently holding this role should initially be vetted rigorously to flush out the few bad apples in the sector, with an ongoing governance to identify and deal with any offenders on an ongoing basis," he said.
According to government figures, there are currently close to 800,000 Ssas in the UK, the vast majority (750,000) of which have only one member.
Ssas with only one member do not have to register with The Pensions Regulator, meaning they are almost completely unregulated.
In November, the government warned that scammers may be encouraging members to set up dormant limited companies purely to set up Ssas, prompting the regulator to issue a warning to savers to avoid Ssas altogether.
But Financial Conduct Authority-regulated Sipp providers that also have Ssas books have argued that what is needed is not a ban, but better regulation. This could include handing the regulation of Ssas to the FCA.
However, Embark Group chief executive Phil Smith told FTAdviser he did not get the sense the FCA was planning to take over regulation of Ssas "any time soon".
james.fernyhough@ft.com
