Once upon a time, long, long ago, the pensions world seemed to be a simpler place. Sure, we had ended up with eight different benefit regimes covering pensions and tax free lump sums, a salary cap relating to occupational pension schemes and so on, but the system was broadly well understood by those tasked with administering schemes and those advising clients on the subject.
I am referring, of course, to the pensions world as it existed prior to introduction of pensions “simplification” on 6 April 2006 (‘A-Day’). People have mixed views over the question of whether simplification was actually achieved, and the introduction of a lifetime allowance and an annual allowance in 2006 (with all of the subsequent revisions) have attracted many column inches of commentary over the years since then. As I write this, the ramifications of the tapered annual allowance are being felt across the country and they have demanded the attention of the Prime Minister.
One of the lesser known changes to occur on pensions A-Day was the fact that small self-administered schemes (SSAS) no longer required a professional trustee to be formally attached to them. Overnight, the term ‘pensioneer trustee’ fell out of use. For those of us old enough to recall, a pensioneer trustee was a specific role relating to SSAS that the then Inland Revenue Customs & Excise, which merged to form Her Majesty’s Revenue & Customs (HMRC) in April 2005 (ie before ‘A-Day’) required. The ultimate role of this professional independent trustee was to ensure that the SSAS was not wound-up other than in accordance with its Trust Deed and Rules. In practice, this meant that the member trustees had formal professional support in the day to day running of their scheme, and that support would extend to things like help with members’ benefit calculations – those eight benefit regimes had their own quirks which needed to be understood.
Trustee versus “practitioner”
The change on that day in April 2006 altered the shape of the market. Firstly, some SSAS clients saw it as an opportunity to save some money and dispensed with the services of their pensioneer trustee (as was). Some former pensioneer trustees took the opportunity to relinquish the roles of co-trustee and joint signatory and resigned from these official roles. Some former pensioneer trustees continued to offer a full service proposition and remained in situ as co-trustee and joint signatory to (among other things) the SSAS trustee bank account. They also took on the new, post A-Day, role of scheme administrator – usually jointly with the member trustees.
The changes also resulted in the creation of a new industry term – ‘SSAS practitioner’ – and since then, SSAS clients have had a range of options to consider.
Firstly, they can go it alone and operate the SSAS without external input and support, as some chose to do soon after A-Day. The risks in doing so are significant, given the complexity of pensions.
Secondly, they can engage a practitioner-only provider. Typically, that provider will have no official roles and responsibilities within the SSAS, and the member trustees will be responsible for HMRC reporting, benefit calculations and so on, although they might think that those responsibilities lie with the practitioner or even with the financial adviser if they have one.
Thirdly, they can engage a full service provider that will operate as co-trustee, joint scheme administrator and co-signatory, so that the roles of the various parties are clear and delineated. Typically, the full service provider will take on responsibility for HMRC reporting, benefit calculations and so on, as well as conducting day to day administration tasks relating to the running of the scheme. It is also likely that all potential investments are screened by the provider, in advance of being made, so that inadvertent breaches of HMRC rules do not occur and result in unwanted tax charges.
Clients may be pleasantly surprised to learn that it sometimes costs around the same to engage a full service provider as it does a practitioner-only one. Given the potential for confusion where the roles and responsibilities are not clearly defined, many clients take comfort from the fact that they have a professional independent trustee in place, despite the fact that legislation no longer requires it. It is very interesting, however, that The Pensions Regulator is consulting on trusteeship as I write this and there is a hint that a professional trustee might become a requirement for schemes.
Stephen McPhillips is technical sales director at Dentons Pension Management