The death of SSAS greatly exaggerated

Last month saw the delivery of the Occupational and Personal Pension Schemes (General Levy) Regulations review and consultation. The document has been met with some spectacular hyperbole regarding the future of small self administered schemes (SSAS). In the much-misquoted words of Mark Twain, reports of the death of SSAS have been greatly exaggerated.

The purpose of the consultation as stated is to “change the structure and rates of the General Levy” applicable to certain types of pension scheme. The general levy funds The Pension Regulator (TPR) and The Pensions Ombudsman (TPO). It also funds some pension-related services of the Money and Pension Service (MaPS).

One Size Fits All?

As a result of frozen levies and an increase in services, a shortfall has arisen and clearly the hole needs to be filled. A similar review was conducted in 2020 which resulted in the introduction of four separate levy rates applicable to Defined Benefit schemes, Defined Contribution Schemes (into which group most SSASs fall) and Personal Pensions and Master Trusts. This was stated at the time to be fair and representative of the differing levels of regulation required for the respective groups.

It would seem logical then, that fair and representative would be a continuing theme, but of the proposals listed in the document, the third and “preferred option” is a one-off levy of £10,000 on all schemes with membership of under 10,000. It has been assumed that SSASs of course are drawn into this category having between one and eleven members (although single member schemes do not fall within the scope of the levy). I am not so sure that this is a correct assumption.

Whilst SSASs sit within the defined contribution group, they exhibit several characteristics which should set them apart for the purposes of the DWP and TPR proposals. There is considerable reference to “small schemes” within the consultation but SSASs are more properly defined as “relevant small schemes”. A minor point perhaps but one that becomes pertinent when you consider that the consultation references OMB research prepared for TPR which cites that “Relevant small schemes (broadly similar to the former small, self-administered schemes), executive pension plans and schemes that were wound up or in the process of winding up were all excluded from the research.”

Driving Consolidation?

It has also been suggested that this levy might be a means of killing off the SSAS market or driving consolidation within it. I am not sure that any government policy should be driven in such a clandestine manner and in any event consolidation with SSASs would be problematic if not impossible due to the nature of many principal employer related investments and earmarked assets, so this simply is not an option.

SSASs have been in existence for fifty years and are the favoured pension vehicle of many small medium enterprise business owners. The schemes often actively contribute to the growth of these businesses through secured loan backs and ownership of the commercial properties from which they trade. The businesses are the backbone of a growing economy and those that should be receiving encouragement by the Government in the current economic climate.

Again, it has been stated that another objective of the levy is to encourage DC scheme consolidation, meaning fewer, better run schemes where appropriate governance exists and value for money for the members can be demonstrated (the latter from which SSASs have already been specifically exempted).

Taking these points separately, all members of a SSAS will be a trustee, to fail in this requirement results in the SSAS ceasing to be a relevant small scheme, and each member is therefore largely in control of their own affairs. The governance of these schemes should therefore be automatic, and this has been reflected in TPR’s light touch to regulation in the past. Where an independent trustee exists, as it does in most circumstances, governance should be even more so assured.

Does This Stack Up?

In terms of the preferred proposal, something simply does not stack up in terms of the calculated redress of the deficit determined. The deficit is listed as around £100m, but if you consider that the top ten SSAS operators have a total number of relevant small schemes of around around 18,000 and there is a long tail of smaller operators which would at least double this number, at £10,000 a scheme the deficit is more than cleared without even looking at any other pension schemes.

In conclusion, there is no reason why SSASs should not contribute proportionately to the funding deficit, perhaps through a subsection of the Defined Contribution group, which limits each scheme levy to something more appropriate to their size and the likelihood of the need of services to be provided from it. In terms of value for money, it seems incomprehensible that a one-off levy of this size should be imposed upon schemes, by virtue of their size of membership and asset value least able to afford it.