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Will Small Self Administered Schemes strike back in 2012?

Fiona Murphy
Written By:
Fiona Murphy

Fiona Murphy asks whether we will see a resurgence in SSAS schemes as a result of changing market conditions.

You’d be forgiven for thinking a SSAS is the poorer cousin of the SIPP. A SSAS can do everything a SIPP can do, but has failed to take off significantly, while its counterpart became the personal pension of choice.However, looming changes could rejuvenate the SSAS market in 2012.

Suffolk Life recently added to the continued SIPP consolidation debate, predicting capital adequacy requirement fears will lead to a flurry of provider activity by the end of the year. Added to this, FSA and HMRC reviews will affect how providers operate. And Pointon York established a series of distribution deals after reporting heavy losses, which could be a sign of market changes to come.

In addition, some industry commentators argue the bespoke SIPP market has reached a stalemate. Whitehall Group director Richard Mattison says: “Everyone who needs one has got one, and I think the market is saturated. The market for low-cost personal pensions will continue to grow, but for full SIPPS it has plateaued.” Such issues could decrease SIPPs’ foothold in the market; creating a vital opportunity for SSAS. But why have SSAS schemes been considered so unpopular?

For years SSAS schemes were thought to be stuck in limbo due to outdated structures. Mattison explains: “There are elements of SSAS that need to be kicked into the 21st century. [This includes] online access and streamlining the banking and investment processing, so you don’t have to go backwards and forwards for signatures. That has slowed things down and it puts people off. But it doesn’t have to be that way.”

Alongside technological advances, the function of SSAS has changed over time. Historically they were widely used by family businesses. Association of Member Directed Pensions Schemes chairman Andrew Roberts says: “The next generation would participate in the scheme which doesn’t seem to be happening at the moment. Children now tend to go off and do other things; this potentially has impacted on the SSAS market.”

And finally, the SIPP industry is a key culprit for the SSAS’ demise. Martin Tilley, director of technical services at Dentons Pensions admits: “The reason they went out of vogue is everybody concentrated heavily on SIPPs. It’s where everyone was devoting all of their marketing and technical resources.” So, why is the under-promoted SSAS market growing in popularity now?

Market changes

There is one crucial difference between a SIPP and a SSAS, which holds the key to why they are coming back into fashion. Almary Green’s managing director Carl Lamb says: “I’ve just done a SSAS for [a client] with regards to generating income for his business. With banks tightening up more with regards to what they’ll loan money to, SSAS will come into their own to do loan-backs to the sponsoring employer. It’s only five years, but you can extend that period by another five years. In the case we’ve just done we’ve borrowed again for intellectual property.” The ability to make pension provision for high earners and benefit the company is a dual bonus for companies in this tough economic climate.

But Tilley warns the loan facility has sustained some interest “but nowhere near [what] people make out”. Instead, the renaissance could be due to a greater realisation of the autonomy SSAS presents for the employer and members.

He adds: “Of the SSASs we took on board last year, only a third were brand new. The other two-thirds were swaps, from other practitioners where the member-clients had got fed up. Either they’d put their fees up, the service was poor, it wouldn’t let them do something [or] they were imposing conditions on them that they had to do certain things they didn’t want to.”
After all, SSAS are not run by a provider unlike their brother.

Roberts says: “To transfer out [of a SIPP], you’ve got to rely on a process and the administrator. With a SSAS if you’re not happy with your provider you can dismiss [it] in the same way if you’re not happy with your solicitor or accountant.” Alongside portability, clients may have more control over how they invest in a SSAS as a result of increased scrutiny on SIPP due-diligence processes.

While the family SSAS model has lost its appeal in business, advisers should not forget its inheritance capability. Lamb says: “It’s a pooled investment. Let’s use our imagination. Let’s say we were in a SSAS together. If we were married and had children, we’d bring them into the SSAS. If one of us was to die prematurely, that asset could be passed onto the child.”

The advantages for clients may be plentiful, but at this stage it is difficult to forecast how much growth is likely. But John Keenan, customer service delivery manager at Xafinity reveals: “In the last couple of years SSAS sales have been pretty steady, but in the second half of last year we have seen a lot more activity in our pipeline. The enquiry stage regarding SSAS grew enormously throughout 2011. Whether that interest converts into actual sales through 2012, we’ll have to wait and see.”

However, we could now be giving too much scrutiny to issues that have been there all along. For Roberts, the “SIPP market has been driven by the fact they’re easier products to explain and sell. You don’t need your own company or business to set up a SIPP whereas you do with a SSAS. These issues make SSAS more popular for some people, but they are still relatively minor issues. You might see a slight resurgence but it’s going to be for a small number of customers.” SSAS may be growing in interest in some sectors of the industry but the jury is out on how this will unfold. Could they catch up to the SIPP?

Evening the playing field

While SSAS and SIPPs may look the same, SSAS are more difficult to manage. Keenan predicts: “Typically a SSAS trustee is looking for more complex investments and more support than an online SIPP would give. And in terms of its popularity, I think SSAS will increase but I don’t think it’s going to get back up to the level to challenge the popularity of SIPPs.”

Others have argued that SSAS benefit structures and costs are outdated, a key reason why we haven’t seen plans grow to their full potential. But Tilley argues: “Our SIPP and our SSAS is almost identical. As a result, it doesn’t cost very much more, if anything to run a SSAS than it does to run a SIPP. Or certainly an equivalent number of SIPPs, if you’ve got a four member SSAS, I would argue it’s more economical to run than four individual SIPPs. The commonality between databases means the same processes and procedures apply, from our perspective we’ve got economies of scale if you like. They’re not as expensive to run as they used to be and therefore still have a role.”

But who should be publicising the benefits of SSAS? For many practitioners, to level the playing field, IFAs have to be more comfortable with recommending SSAS. However, there are a number of issues which mean IFAs retain their focus on other pension products.

Roberts says: “The new generation of IFAs won’t be taught about SSAS very much. Insurance companies are out of the SSAS market. They run a lot of CPD seminars for IFAs. It doesn’t come up too much in their training and CPD so perhaps there’s an issue as well. There’s little awareness of it as a product type, what it does and what it’s used for.”

Tilley agrees: “The new breed of advisers has been brought up on SIPPs being the solution to most things, whereas [older] others were brought up on SSAS. The only thing that stood in their way is that you’ve had a requirement to make an individual pension scheme return because it was an individual trust, whereas a SIPP is, if you like, a master trust. So you have a little but more of an administrative inconvenience.”

An additional weight on advisers’ minds is SSAS are regulated by the Pensions Regulator rather than the FSA. This distinction often puts IFAs off. It is clear the industry will have to do more to pull advisers out of their comfort zones to ensure clients have access to a SSAS, if it is the right solution for them. Where this source of education should come from is unclear.

For Lamb, learning should come from within the advisory community. He says: “People like me [should spread the word] because the product providers aren’t going to do it. They are not mass market, there are only one or two players in that market, and even that’s become more niche. As an adviser, you can talk to people about benefits.

“If more people were aware of what the options were and the flexibility of the contract, you’d get more people looking at doing it. Because it’s quite a specific area, that needs specific advice, it’s not mainstream; it always sits on the shelf. For the right people, it’s a very good product. It should never become mainstream either.” Perhaps SSAS will never undergo a huge comeback for this very reason.

While it is likely that SSAS will grow in popularity over the coming year, it is clear that there needs to be a lot more industry consensus on spreading awareness of the SSAS, as it makes sense to businesses in this period of uncertainty. While it remains unlikely that SSAS will over-take the SIPP, it is clear they increasingly have a role to play and providers and advisers should be pointing their clients to the best vehicle for their circumstances, rather than relying too heavily on old favourites.