In his latest guest blog for Investment Sense, Martin Tilley, Director of Technical Services at Dentons looks at the latest topic gripping the self-invested pensions industry, that of pension liberation.
Pension Liberation is a subject on the lips of HMRC, the Financial Conduct Authority and The Pensions Regulator and has been a frequent topic in recent industry and national press.
The raising in awareness of the financial penalties of liberation has undoubtedly made the public less susceptible to being deceived, but the downside of this raised profile is that others might now see the opportunities that exist. Liberation is not just confined to the workforce based pensions but a growing problem appears to be misuse of Small Self-Administered Schemes (SSAS).
Trustee and administrator? No thanks!
Quite recently we have been asked to establish SSASs where we are told our services as ongoing trustee and Administrator will not be required. These cases often involve the consolidation of funds worth several hundreds of thousands of pounds.
Unfortunately, legislation and regulation seems to be stacked in favour of the deceivers. A pension scheme member is entitled to take a cash equivalent transfer of their accumulated benefits under a registered pension scheme, to another registered pension scheme, and the ceding scheme trustees are actually in breach of their duties and responsibilities in not processing that transfer request even if they suspect liberation is the motive for the transfer.
By creating a SSAS, where there is no ongoing control of the funds, save for the member trustees, the practitioner is in effect facilitating a vehicle where pension liberation is not only possible, but only traceable after the event has occurred.
Thus it is possible for a newly established company to approach a SSAS provider to request that they establish a SSAS for their employees and in doing so provide a registered pension scheme which immediately has an air of acceptability and credibility. As outlined above, other registered pension schemes have a duty to make transfers to these schemes if asked.
SSAS are, of course, regulated by the Pensions Regulator (TPR) and they do have powers to:
- Suspend or prohibit individuals or organisations acting as trustees
- Appoint new trustees to schemes
- Issue financial penalties
- Freeze and in some cases repatriate pension scheme monies
HM Revenue & Customs (HMRC) can also, of course, withdraw the scheme’s registered status, which would also incur tax penalties. However, the penalties are imposed upon the Founder Employer, members or scheme administrator after the event and thus are difficult, time consuming and expensive to impose and collect.
The vast majority of SSAS practitioners will reject any approach of this kind; however, there are some that will simply see it as a profitable, if very short term piece of business. However, such action may result in long term implications for the profession.
Regulation or due diligence?
We do not wish to see heavy handed regulation so it must be up to SSAS practitioners to set in place their own robust procedures for knowing their client before offering to establish a scheme. This should include conducting suitable due diligence to any enquiry which should involve researching the founder employer to check that it has not recently been set up, has been trading, perhaps has a website etc and actually employs the members. There are a variety of online tools that can be used to assist including Companies House, Duedil and even LinkedIn that can provide history of companies and directors.
Intermediaries should be checking their own books of SSAS clients and reviewing the practitioner in place to ascertain if they will accept any such business. Although their own clients maybe operating their schemes perfectly legitimately, when the Regulator does come calling, as they will on practitioners who have facilitated any liberation schemes, it will be their whole book of SSASs that will be investigated – even if such an investigation proves unwarranted, it will be an unwelcome waste of time, and an unnecessary expense, for the adviser.
Individual SSAS investors might wish to align themselves with a reputable SSAS practitioner for the same reasons. HMRC have stated that whilst it is impossible to insist upon a professional trustee being in place, they will view a scheme without one as more of a concern and thus more likely to be investigated than a scheme that does.
Martin Tilley, Director of Technical Services at Dentons, can be contacted on 01483 521 521 or by emailing firstname.lastname@example.org