Who is in control of clients’ pensions?

Despite both being registered schemes and subject to the same legislative rules governing annual and lifetime allowances, Sipps and SSASs are quite different vehicles in a number of ways.

Perhaps the most obvious is that a SSAS is an occupational pension scheme, designed to be established by an employer for its directors and/or employees.

HM Revenue & Customs scrutiny has increased over the past few years to verify the connection between members and the employer in one of several attempts to prevent the establishment of schemes used to facilitate scam investment or pension liberation. Legislation concerning transfers to SSASs has also been tightened.

A Sipp, on the other hand, is a vehicle established by an individual for themselves in conjunction with a regulated provider. This issue rolls into another key difference – that of the control of the vehicle.

Sipps

What must be understood is that a Sipp is an integral product of the Sipp provider. Even though some Sipps permit a member to be a co-trustee, it will always be operable in accordance with the provider’s terms.

The provider will determine what type of assets it will accept into its book. It may even invoke conditions on those it does accept, such as a maximum percentage of the fund or, with property for example, which professionals can be employed to assist in the administration: solicitors, valuers, insurers and sometimes property managers.

There are sound reasons for these conditions. The Sipp provider may want a book to conform as it is easier to administer and it will have its own business risk management profiling. It will also wish to make its product as attractive as possible to the client, as an unhappy and restricted client may wish to move to another provider with more favourable terms.

While the client has a legal right to do so, movement between Sipp providers can be problematic, time-consuming and expensive. A new provider must be researched, a new Sipp established and assets then accepted by the provider and transferred across between the two, separate legal entities.

SSASs

A SSAS is a different proposition. Constitutionally, it differs from a Sipp in that the employer establishes it as a freestanding single trust. Although there will usually be a practitioner to assist in this process, and they might fulfil the role of the “fit and proper scheme administrator”, they are not the “provider” of the SSAS.

The control of the SSAS will lie with the scheme’s trustees, in some cases in conjunction with the sponsoring employer. With a SSAS, the trustees are usually all the scheme membership. It is the scheme’s governing documentation (the trust deed and rules). The practitioner is simply employed by the trustees to provide guidance and advice as a specialist in this area.

The practitioner might also be a co-trustee and, with the deed commonly operable on a unanimous basis, would be able to veto certain investments or actions by the member trustees; for example, this could apply if the action would result in a tax charge arising on the employer, members or the scheme itself that they believed was not in the best interests of all the beneficiaries.

Member trustees or practitioners might disagree on other, perhaps not quite so clear-cut, matters relating to perceived prudence.

It might be that a loan back to the employer could meet the accepted criteria of avoiding an unauthorised employer payment but the security offered would, if called upon, result in taxable property charges.

The practitioner might be reluctant to accept the investment while the member trustees might be prepared to accept the risk that no default will occur. Other disagreements could arise over something administration-related, such as service standards or fee levels.

In such instances, rather than having to create a new scheme and transfer assets across to it, the employer or member trustees in whose name the right to do so is vested may simply remove the practitioner or trustee and replace them with an alternative.

The scheme remains unaltered and under the control of the member trustees, albeit with a different employed practitioner.

If you would like further information regarding Small Self-Administered Scheme (SSAS) pensions, or would like to speak to one of our experts, please get in touch.