Martin Tilley, director, WBR Group, argues that
When a new small self administered scheme (SSAS) operator enters the market, advisers will inevitably need to check out their credentials to satisfy themselves that their clients are in safe hands. This is never more appropriate than when selecting a partner to administer a SSAS.
SSAS operators are often erroneously referred to as “providers” akin to an operator who “provides” a self invested personal pension (SIPP), but a SSAS is not a product, it is an individual scheme controlled by its trustees. As a result the operator doesn’t make the rules or dictate what assets can or cannot be accepted into the scheme or how it should be run.
It is for this reason that I smile every time that as part of a due diligence package, we are asked to provide a list of permitted investments. We don’t have one.
A permitted investment list delineates the assets that are pre-approved for inclusion within the SSAS. While this approach provides a certain level of clarity and guidance, it also inherently limits the scope of investment opportunities for the scheme participants. Contrastingly, a flexible approach allows for a broader spectrum of assets to be considered, offering several distinct advantages for both the scheme and its members.
A SSAS can therefore be the most flexible pension scheme available on the market, restrained not by the whims of a SIPP provider’s risk control and administration mechanisms, but by the good judgement of the scheme’s trustees, who are also the members.
That is not to say that these same members should be let loose with wild abandon. What should probably be correctly asked of a SSAS operator is “What controls do you employ when advising on the acceptance of an investment within a SSAS”. It is here that a SSAS operator, most usually through its professional trustee, will be able to apply their experience in understanding the investment and advising the trustees in a practical manner on the pertinent points for consideration. These would include the ability for the SSAS to hold the asset, HMRC and legislative considerations, liquidity issues, secondary markets for disposal as well as the obvious fit for the scheme members’ attitude to investment risk/reward.
Most usually the SSAS operator and its professional trustee will not be registered or capable of providing regulated financial advice and in accordance with their fiduciary responsibilities, trustees should seek professional guidance where their own abilities are tested, as set out in Section 36 (3) of the Pensions Act 1995.
So, is it more appropriate to operate a “Non-Permitted Investment List”? Perhaps so, but legislation post A Day actually “permits” any investment to be held within a Registered Pension Scheme albeit many, including the obvious ones of directly owned residential property and taxable moveable property, will immediately incur punitive tax charges. But aside of these, which are clearly not in the interests of the scheme’s beneficiaries, an investment could be acceptable in the right circumstance for the right clients where appropriate consideration has been given by the trustees, including the provision of pertinent advice.
So, operators who cite long lists of unacceptable assets may be doing so for one of two reasons:
1. They also operate SIPPs – which have a more restrictive asset acceptance regime and one which creates obligations on the SIPP operator to hold additional capital adequacy reserves. As part of their administrative process, they prefer to operate a mirrored service for their SSAS clients.
2. They do not have the appetite or resources to conduct research or due diligence on uncommon investments.
I should be clear that I have no issue with either policy. Each company must operate a robust governance framework and diligent oversight to ensure prudent investment decisions. Companies operating SSASs need these risk management protocols to safeguard themselves, the scheme, and its members’ interests.
These protocols are all the more necessary given the rise of “investment driven SSASs” where promoters of investments, most usually not permitted within SIPPs, are encouraged to create a SSAS so the investment can be made using an individual’s main source of investable funds – their pensions. SSAS operators indulging in acceptance of such assets are opening the door to investigation of their responsibilities if they are also trustees.
So, in summary, a flexible approach by a SSAS operator can enhance member satisfaction and engagement within the SSAS. It can afford the acceptance of an investment in areas in which the member trustees may have their own expertise.
But the operator must always fall back on their principal role which is to serve the duties of trusteeship as are conferred on them by legislation.
