Pensions regulator well-intentioned but small scheme change is excessive

A SIGN of the times we live in perhaps, but a declaration of war by blog? Surely not. In this case, the aggressor being the Pension Regulator (TPR), while the perceived foe was small selfadministered schemes (SSASs). In case you are wondering, an SSAS is a small, occupational pension scheme, designed for up to 12 members, usually for the owners or directors of small businesses.

While the TPR’s efforts are wellintended (one of three measures proposed is to make pension scamming as difficult as possible), the suggested outright ban on pension transfers to SSAS arrangements appears like a nuclear option, rather than a balanced, proportionate measure.

Although pension scams are varied they can be broadly characterised by either: the early release of funds from a pension scheme (known as pension liberation) or the investment of pension savings into fraudulent or inappropriate investments. The former will result in significant tax charges not anticipated by the pension policyholder while the latter can see a lifetime of pension savings disappear in a second.

It is beyond doubt that pension scams need tackling. Research by the Money Advice Service suggests that there could be as many as eight scam calls every second, whilst reports of suspected pension liberation fraud have doubled in 2015/16 compared to 2014/15.

The timing of TPR’s proposals are not coincidental; issued the day after a joint consultation by HM Treasury and the Department of Work and Pensions closed. The consultation sought views across three areas: a ban on cold calling in relation to pensions, limiting the statutory right to transfer and making it harder for fraudsters to open small pension schemes. Clearly, TPR thinks small pension schemes are just too risky altogether.

But is it fair to ask why SSAS schemes seem to have become the vehicle of choice for pension scammers? Compared to other types of pensions, SSASs have minimal legal and reporting requirements. And unbelievably, in 2006, rather than moving requirements forward, the requirement to have an Inland Revenue recognised, professional pensioneer trustee was abolished.

Compare this to the (everincreasing) regulation experienced by SIPP Operators. The Financial Services Authority first began regulating SIPPs in 2007. From the outset, this required explicit approval from the regulator for individuals to undertake controlled functions. And the bar continued to be raised by its successor, the Financial Conduct Authority, with three separate thematic reviews in just a decade of regulation and a not insignificant increase in capital reserves introduced from last September.

It might come as a surprise that TPR does not know exactly how many SSASs exist. But this is simply because there is no requirement for a single-member SSAS to be registered with the regulator. However, the government’s consultation suggests there be as many as 750,000 one-member SSASs. By comparison, 21,000 SSASs (those with two or more members) were registered at the end of last year – equating to a paltry three per cent of all SSASs. In somewhat of an understatement, The Pension Regulator admits “the theft of consumers’ pension savings has proved hard to prevent under the current legislative and regulatory framework”.

So rather than throwing the baby out with the bathwater, it would seem more prudent to fix what is broken.

The regulator should create a fit for purpose, robust legislative and regulatory framework. The reinstatement of the professional pensioner trustee would be an ideal starting point along with bringing SSASs into the sphere of FCA regulation.

SSASs are particularly attractive to business owners due to unique, and hugely tax efficient, business capital raising features as well as being an ideal vehicle for business succession planning. Against a backdrop of serious disengagement, all forms and shapes of retirement saving should be encouraged rather than consigning a particular option to extinction. Properly run SSASs, as most of them are, can provide excellent long term pensions vehicles for many small businesses.

So much like their communication channels, maybe it is time for the Pension Regulator to press for their regulatory powers to be brought into line with the 21st century.

‘‘ Rather than throwing the baby out with the bathwater, it would seem more prudent to fix what is broken

Eddie McGuire is managing director of @SIPP.