It is fair to say small self-administered schemes (SSASs) have had a tough time recently.
One senior industry figure referred to them as effectively unregulated products, and another floated the idea of banning new ones altogether.
There are hurdles on the horizon such as the master trust regulations and Legal Entity Identifiers. Meanwhile, scammers often use SSASs as their vehicle of choice, causing HM Revenue & Customs (HMRC) to take several months to register new schemes.
But the SSAS is an innovative and entrepreneurial product and acquisition continues across the industry, with new enquiries and business on the rise.
SSASs have all the benefits and investment flexibility of a Sipp. The pooling of members’ funds means a SSAS can contemplate large commercial property purchases, such as those belonging to the sponsoring employer. They also offer the facility to make a loan from the SSAS funds back to the sponsoring employer.
However, any regulation has to have the right controls and governance arrangements in place. For a SSAS, this means protecting savers, promoting competition and preserving the integrities of the pensions tax relief system.
SSASs are currently regulated by The Pensions Regulator (TPR). Of the 34,500 occupational defined contribution (DC) schemes registered with TPR as at December 2016, 21,000 of those were SSASs with between two and 11 members.
TPR also estimated there could be as many as 750,000 one-member SSASs. This would put the number of SSAS members in the UK between 800,000 and 1 million.
However, data from TPR in 2016 shows there were 120 schemes with 5,000 or more members, which it says pointed to a trend of concentration in the larger schemes.
The BT pension scheme, for example – one of the largest by fund size in the UK – had 200,000 members as of 2016.
Putting these figures together, there seems to be a growing spread at the bottom and an increasing consolidation at the top. This makes a one-size-fits-all regulatory approach challenging.
A SSAS is a registered pension scheme, which means it is on HMRC’s radar. It has beefed up its vetting process for new schemes, and in September 2014 introduced its ‘fit and proper person’ criteria for scheme administrators.
It also conducts ongoing due diligence such that if a scheme administrator has doubts over a scheme they are being asked to transfer to, they can ask HMRC to let them know if the scheme is still registered or if they have information in their possession that gives them concerns. However, it is still a big resource burden, and we have seen this play out in new scheme registration times.
The Financial Conduct Authority (FCA) is another option. Sipps are regulated by the FCA, and they function in a very similar way to SSASs, so some kind of FCA regulation feels like a natural fit for a SSAS. In practical terms, though, how would the mechanics of regulation work? Who would be an FCA-authorised entity in that situation?
There is the option of reintroducing the pensioneer trustee role (that disappeared in 2006), which is something we and others have suggested in the past. However, it is fair to say there has been a mixed response.
On one hand, it affords a greater level of consumer protection. On the other hand, there are plenty of reputable non-trustee SSAS practitioners who are providing great service at competitive rates. This helps to promote competition in the industry and keep the bigger SSAS providers honest with their fees.
There is a place in the retirement landscape for SSASs, and many savers have achieved great outcomes for themselves, their families and their businesses. Better regulation generally equals better outcomes, but from a regulatory perspective, SSASs are a little bit in limbo.
Martin Jones is technical consultant at AJ Bell.