An interesting Pension Ombudsman decision caught my eye recently. Brothers, Richard and Terence Whyte owned shares in their family company and were the only members of its SSAS.
In 2006, their trustee Rowanmoor Pensions informed Richard, through his IFA, the scheme rules would have to be updated in accordance with A-Day regulations.
However, Terence refused to amend the rules and trust deed; as Rowanmoor recommended, due to legal action between the brothers. Later the company went into liquidation and the scheme was frozen.
Terence then notified Rowanmoor he wanted to take his pension at 50. However, he would not be able to start receiving benefits until he reached age 55 in 2014. He would also be unable to take a 25% tax-free lump sum.
To calculate retirement benefits, the brothers had to update a rental agreement of printing machinery and agree its value. Richard refused to sign a new trust deed or allow Terence to transfer his benefits out. It took the Ombudsman six years to resolve the case.
Rowanmoor head of pensions technical services Robert Graves explains:
"There has to be unanimous agreement by the trustees over decisions. That is one situation, where [Rowanmoor] was in between a rock and a hard place due to the two remaining members in total disagreement with what needed to be done. Usually you mediate and say these are the rules you should be complying with and you can usually sort [issues] out. As in this case you do your best, but ultimately it might need a decision to be made by the Ombudsman."
Disputes can occur in SSAS, but they rarely escalate like the Whytes' situation. However, Richard Mattison, director of the Whitehall Group believes this case is part of a bigger picture.
He says: "Where you have more than one person in a pension scheme and you have a combined investment strategy, there is always a risk they'll fall out and argue over the fund, assets and where the money is going to go.
"It is not a problem with the product, if you have a syndicated SIPP, the same thing will happen. It is not the fault of the governance of the SSAS but when you have more than one person doing something, there's always a risk they're going to fall out. What you are hitting on is one side of a really big issue, and that is the fact there is no regulatory requirement to have an independent professional scheme administrator."
What has been going on?
Barnett Waddingham claims there are over 5,000 orphaned SSAS without a trustee or administrator overseeing affairs. HMRC has denied this as speculation but it is clear there is a growing problem.
A number of operators, including James Hay Partnership, Hornbuckle Mitchell and most recently, Barnett Waddingham have launched SSAS clean-up services after reporting an increase in orphaned clients asking for help.
Hornbuckle Mitchell's technical consultant, Lisa Webster, says: "Where there has been no professional advice, a lot of schemes are in limbo because the members weren't given any guidance as to what they were meant to be doing. Many have not even registered online. They do not have a Pension Scheme Tax Reference. Is HMRC aware of them? It must be aware of them in terms of it knew what all the schemes were previously but is it aware of them on an on-going basis and is it doing anything about them?
She continues: "The ones with a professional company doing basic administration are unlikely to have unauthorised payments but the scheme returns may not have been done because it is the members' responsibility. In addition in those cases where they have removed any professional trustee - some think they can do it themselves and don't want to pay a fee to a trustee."
Schemes can incur fines for late or missing scheme returns and hefty charges for inappropriate investments or unauthorised use of funds. The revenue is not concerned about intention. Even if a member realises they made a mistake and tries to rectify the situation, they will be penalised.
Why is this happening?
Why are SSASs facing such difficulties? We have to go back to 2006's A-Day and the removal of the pensioneer trustee.
Graves says: "Pre A-Day, any SSAS had to have a pensioneer trustee appointed. This was somebody or an organisation known to HMRC to have a good standing, experience and knowledge.
"[They] essentially acted as the whistle-blower to HMRC if the trustees or members were trying to do anything against the rules. The pensioneer trustee's livelihood and reputation was on the line and so they would whistle blow to HMRC to say something was wrong."
What can be done?
SSAS professionals agree a return to using pensioneer trustees could help matters. Graves says such a move could deal with growing concerns around pension liberation, which could have been prevented under the old regime.
Holly Watts, head of SSAS new business development at James Hay Partnership, says: "Managing trustees are finding the expertise a [professional] trustee brings invaluable. We are seeing many of the schemes that became self -managed after 2006, return to our organisation looking for professional support and guidance.
"It is fair to say the extent of the duties involved with managing a SSAS effectively was underestimated by many trustees."
Mattison says: "We asked the revenue why they did away with this pensioneer trustee requirement. The revenue said it is all to do with EU legislation. EU companies do not recognise trusts as a legal entity. I went back to them and said so what? You could still insist on having a professional scheme administrator who is registered with the pension regulator and achieve the same thing.
"The revenue gave me some waffle about how they have a risk based approach and never answered my question."
Mattison continues: "I feel strongly it would wipe out all this malpractice in one fell swoop or at least give somewhere to check it. It would cut down all the aggravation with the revenue wanting to audit schemes on a case by case business, they could come into practitioners like us and do spot checks like the FSA do."
However, Lane Clark and Peacock senior consultant, Peter Clarke disagrees.
He says: "Whether there needs to be a professional trustee really depends on the client. A lot of clients take comfort from having a professional trustee and a lot will take comfort if they have got a professional adviser. They will keep them on the straight and narrow, so they do not need a professional trustee, particularly if that is going to increase the paperwork involved. There is an argument for and against.
"As long as they ask the right questions in the first place, I don't think it's critical [they]have a trustee but they probably ought to be getting advice."
Without a more defined framework in place, we will continue to see issues around compliance and decision-making. SSAS are undoubtedly growing in popularity but governance issues could mar their reputation
With the vast bulk of client money now going on to platforms, who really benefits? The client, the adviser or just the platform provider?