Switching multi-member SIPPs
19 July 2017
Nigel Bennett, sales and marketing director at InvestAcc, talks about the increasing number of established professional firms who are reviewing their pension arrangements, switching to new SIPPs and transferring commercial property from legacy plans.
Recently, there has been a pronounced spike in enquiries for multi-member SIPP arrangements, where a review of their existing scheme has led them to consider whether it remains fit for purpose.
Most of these schemes started out as a smallish group of between two and six ‘founding partners’, perhaps as long as 20 years ago, there is now a larger group with a mixture of working and retired members, each with a different share of a property, and occasionally more than one SIPP provider is involved. There may still be a mortgage in place, although typically it will have been repaid some time ago.
The common themes are:
So, why are these all coming along now? The answer is likely to be simply a reflection of what has happened with the SIPP market over the last few years, the service issues that some providers face (or a change in strategy at some firms), and a new generation of talent coming through in professional firms. Over time, straightforward structures tend to evolve towards increasing complexity.
It is true that these schemes don’t tend to be moved from provider to provider with any great frequency, the costs and hassle of doing so make that a bad idea; it usually takes a major event to occur, or the latest in a series of smaller ones, to trigger a review of the scheme.
Benefits of a review
In many cases, the benefits of reviewing the arrangements can be:
The main downsides of switching provider will be costs and timescale, with a property there are always various charges and fees to consider and sometimes these transactions can take a long time; some SIPP operators will levy a transfer out fee / penalty, which can be substantial. If there is an existing mortgage, then if this is to continue it may not be possible to mirror the terms when switching to a new provider. If the property is in Scotland then the transfer may be subject to Land & Buildings Transaction Tax, which may make it unattractive to switch providers, although we await more guidance from Revenue Scotland on this issue.
SSAS arrangements are an option but tend to work best for smaller groups, the main consideration being that there is one common investment pool and that all decisions have to be by unanimous agreement, which gets more difficult the more members you have. Whilst earmarking of certain investments may help, it does not avoid the need for all members to agree. Also, a new SSAS will take several weeks to establish, which can be an issue when time is tight (perhaps because the existing scheme annual review is due shortly, with members committed for a further year of fees). Finally, there is usually a limit of 11 members in a SSAS, which can therefore limit potential future growth of the membership.
For those cases where the costs of switching provider are worthwhile, there can be numerous other benefits. Administration and service can be subjective, although they are often stated as reasons for the switch, so this will be a very important aspect to consider when selecting a new provider.
Putting a Declaration of Trust in place, or some other agreement, can provide much needed structure. At the same time, any financial security concerns can be addressed; it is often new members who may be more inclined to ask searching questions about the existing scheme provider.
An adviser will research the market and assess suitability, whilst also dealing with other issues such as lifetime allowance planning, contributions allowances, investment suitability, exit strategy, and whether there are any protection needs.
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