The SSAS market has long lived in the shadow of the more successful SIPP market. However, Billy Mackay believes SSAS still has much to offer
Approaching 35 years of age, the small self-administered scheme (SSAS) market continues to frustrate, as it seeks to justify its existence in the shadow of the SIPP market. Like two siblings, SSAS and SIPP share the same DNA, but have developed very differently. SIPP has gone out and challenged all comers with considerable success, whereas SSAS has somewhat apologetically languished in its comfort zone.
So what lies in store for the SSAS market? With a diminishing number of SSAS providers, the reality is that SSAS will continue as a niche product for the rest of its days. That is, however, no excuse for SSAS to be ignored. Quite the opposite in fact. Many clients truly appreciate the control and flexibility afforded by SSAS, and some wonder why more people don't have one.
There is no doubt that in many situations SSAS has been, and will continue to be, overlooked in favour of one or more SIPPs. Where there is no family connection between the members it is hard to argue against this. However, the typical domain of a SSAS has always been shareholding directors of a private company where there is some form of family relationship between the members. A SSAS in this situation remains as valid now as it did in 1973.
Over the years, it has become clear that owner managers will pay a premium for control. Control is exactly what a SSAS brings and in many cases at no more cost than SIPPs.
What happens if the SSAS provider's service fails to deliver? Well, a new trustee/administrator is appointed to the scheme. Should something similar happen in the SIPP world, then an in-specie transfer is the only way out. If there is borrowing involved, e.g. to fund a property purchase, then transferring can prove complex and expensive.
There are few practical investment reasons that differentiate a SSAS from a SIPP and I believe that the scheme pension/ASP differential is of little merit. However, do remember that although SIPPs can jointly own property it can be a complicated matter to change the ownership percentages (perhaps as one member retires while another is still building up funds).
SSAS can operate on a pooled investment approach. This allows not only properties to be 'jointly owned' but also allows a gradual transfer of assets between generations as retired members' fund shares decline and younger members' fund shares build up. It is for this reason that SSAS remains a viable solution for situations where you have a family connection between the members.
All that is left, other than cost, is control i.e. whether the client wants to own the pension scheme (SSAS) or piggyback on someone else's scheme (SIPP). The former offers up slightly more paperwork, but as long as the SSAS provider offers the full service (i.e. they act as trustee, administrator and provide scheme accounts) then this complication falls away.
While we can debate the merits of SSAS v SIPP in start up situations, the position for an existing SSAS is far more clear-cut. There are very few reasons now to convert a SSAS into one or more SIPPs - gone are the different funding, investment, borrowing and benefit rules. However, existing SSAS need nurturing and do not look after themselves. As HMRC continues to assimilate data from such schemes from the annual returns, it is only a matter of time before HMRC decides to focus its audit resource onto such schemes.
If the SSAS provider is to offer any form of credible role then not only must they accept the full responsibilities as administrator and trustee but in order to satisfy these responsibilities, they must have a degree of control over scheme assets, in particular in maintaining accounting records for the scheme. There are questions you should be asking, does the SSAS provider:
a) accept the obligation and responsibilities of trustee and administrator?
b) maintain accounting records and prepare annual accounts?
c) complete and submit the HMRC Registered Pension Scheme Return, Annual Event Reports and Quarterly Accounting for tax returns?
If the answer to any of the above is no, then a review as to who is carrying out these duties and responsibilities is required.
It is interesting to reflect on the recent development of the SSAS market to see what may happen in the future. Looking back at the various SSAS surveys over the last ten years, there are a few things that jump out. The number of full SSAS has remained fairly stable, at around 15,000. This is maybe misleading, as many SSAS will have been transferred into SIPPs over this period, which disguises a disregarded healthy establishment of new schemes.
Asset values reported behind these SSAS are somewhat questionable with many not reporting accurate values. Asset values per SSAS are increasing, as you would expect from a maturing market. Average SSAS values will sit somewhere around the £500,000 mark, but this will be heavily skewed by some very big schemes.
SSAS aren't pile 'em high products, but when one assumes that only the top few per cent of an adviser's client bank will have a SSAS, they remain the private banking equivalent for the pensions market.
The SIPP market will continue to be the key area for growth. However, despite claims to the contrary the SSAS market is here to stay, albeit in a niche form. The SSAS product needs to stop apologising for its existence and concentrate on consigning its mid life crisis to the past.
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