Banning cold calling won’t be sufficient to stop the fraudsters by itself, argues Martin Tilley.
Small self-administered schemes (SSAS) were first introduced in the late 1970s and became popular not only for tax-efficient pension saving, but also as a vehicle that can be used in the development of a company.
Originally administered under a discretionary approval basis, there was a requirement for a professional trustee (PT) and a scheme actuary. The primary role of the PT was to prevent the inappropriate wind-up of the scheme, but their services varied.
One hoped they would also have offered a fiduciary voice of reason for investment themes, however there was no requirement for them to have specialist investment knowledge.
SSAS waned in popularity from 1995 following the income drawdown flexibility afforded through self-invested personal pensions (SIPPs). In 2006, at the time of the move away from discretionary approval to registered schemes, the role of the PT was dropped.
Many ex-PTs exited the market and other SSAS sacked their PT regarding them as no longer a necessary expense.
Return to growth
A subsequent increase in regulation and cost of SIPPs has seen a return of growth to the SSAS market. While much of this growth has been for the right reasons (SSAS do have some distinct advantages over SIPPs), too much of the growth has been for negative reasons.
SSAS are perceived as less regulated pensions than SIPPs and thus can, and have, been used for the liberation of pensions and for the promotion of investments that would not be accepted into SIPPs.
The government has realised this and is concerned that SSAS are not solely being used for the purpose for which they were intended. In 2014, the government introduced the need for a fit and proper scheme administrator.
The intention was that this party would operate an oversight function to some degree. Unfortunately, many administrators fulfil this role reactively rather than proactively and are not always one of the trustees.
Cold comfort
Clearly more needs to be done. A recent consultation on the banning of cold calling stated: “SSAS exist in order to give small businesses a way to provide cost-effective pensions for their employees. However, very small schemes – particularly those with single members – can be open to abuse because the only person party to all the decisions is the person being scammed.”
It expanded: “The Pension Regulator’s (TPR) view is that SSAS are increasingly marketed as ‘products’ offering exotic investments and unrealistic returns, and there is evidence that some consumers have lost their pension savings as a result.”
The banning of cold calling will be one way of preventing the promotion of these exotic investments, but there are many ways that these scams can be pushed out into the market. So what else can be done?
Information gathering
HM Revenue & Customs (HMRC) has already suggested that it will consider very closely the registration of a new SSAS that has a new or dormant founder employer or is a single member scheme.
It has introduced a secondary documentation and information gathering requirement, which must be satisfied before granting scheme registration. This must occur before a transfer or contribution can be accepted by the scheme.
No doubt other measures will be considered. The reintroduction of the HMRC-approved or TPR-regulated professional trustee would be one means of overcoming the problem, but this could cause additional expense.
Another might be the reintroduction of a permitted investment list, although this too has its downsides in that exotic investments can be synthesised into permitted assets. Such a list, depending on how tightly it was constructed, might also prevent otherwise acceptable investments.
It is sad that the government feels any of these actions are necessary. A further measure might be a concerted educational programme aimed at identifying common features of scams, so that the public is less susceptible.
Sadly, greed and the ever more sophisticated scammers mean this would need to be an ongoing process.
Martin Tilley is director of technical services at Dentons Pension Management
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