Martin Tilley discusses the importance of due diligence in both the SIPP and SSAS world
A SSAS is an occupational pension scheme that gives its members considerable flexibility and control over the investment policy and underlying assets.
A SSAS is subject to the same rules regarding contributions and benefits as an insured company arrangement but is much more flexible and gives control of the underlying scheme assets to the trustees.
The assets of a SSAS do not belong to any particular member of the scheme due to the collective nature of the trust: the members, as trustees, will jointly control the scheme and its investments.
Due to the investment flexibility, much like a SIPP, the members and those advising them need to ensure that the investments chosen are suitable and that with the lower investment growth environment they are carrying out the relevant due diligence.
One area that may not be considered as suitable is off plan hotel rooms.
There has been much written this year about the opportunities of such investments and it has been suggested that some investors have considered remortgaging their homes to release capital with which to invest into these projects. For those cynics out there, it may be considered that the larger the investment, the larger the commission would be.
It is gratifying to know that those investors with an adviser, would be warned against these types of investments unless they have undertaken high levels of due diligence, not only on the company offering these developments but also the developments themselves, ensuring proper title etc.
But it is also a sad fact that the impact of the economic downturn is encouraging investors to take more risk than perhaps they feel comfortable with.
Many of these investors that go direct to make the investment take comfort from the fact that often the literature for these investments states that it has been "SIPP Approved".
This statement of course implies a degree of credibility, and simply including the word "approved" will be taken by many prospective investors as sufficient for them to believe that someone else has done the research and due diligence on the investment and that they therefore do not need to.
The only thing that this statement demonstrates is that a single SIPP provider has deemed it acceptable but as there are 120 providers, this doesn't carry much weight. In addition is the fact the Financial Conduct Authority (FCA) has twice run thematic reviews requiring them to tighten their controls, some quite considerably.
With the FCA regulating SIPPs more heavily and the capital adequacy requirements for a SIPP provider becoming more onerous for non-standard assets, it would appear that for those unscrupulous sales people looking to earn high levels of commission, the SIPP avenue is closing down.
Focus on SSAS
One concern for the pensions industry is that these sales people could turn their attentions to a SSAS. These are perceived as being a less regulated vehicle and are not considered ordinarily under the remit of the FCA.
In reality this means that there is no compulsory regulated body policing the advice being given on the actual investments within a SSAS. The investment decisions are made by the trustees, most usually the members and it is they who are the ones often seeking the investment gains that these opportunities promise.
It may be that in time we see the expression "SSAS Approved" being used on some investment flyers from these types of firms.
Fortunately, most SSASs are established by reputable professional firms who act as a co-trustee, many of whom also operate SIPPs and adopt an identical fiduciary approach.
SSASs are after all regulated by The Pensions Regulator who operate a strict code of conduct and can sanction and fine trustees for inappropriate behaviour.
These professionals will be able to apply their fiduciary skills and hopefully identify any of the more obviously non transparent investments being offered to investors.
It is unfortunate, that unless they are separately regulated to do so, they cannot provide investment advice, but simply point out to their co-trustees the importance of researching an investment with due care and attention, by verifying through independent means the claims of the promotional literature.
Only with this high level of due diligence will some investors see the true features of such an investment and the potential risks involved. This can only be good for the investor, the providers and the wider industry.
Martin Tilley is director of technical services at Dentons Pension Management Limited
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