What if a SSAS administrator is not deemed ‘fit and proper’?
What should advisers look out for when approached by non-professionally advised SSAS clients now looking for help? Martin Tilley, director of Technical Services for Dentons Pension Management, looks at the responsibilities of a SSAS scheme administrator and where failings commonly occur
Recent months have seen an increase in activity in approaches to us relating to currently non-professionally advised SSAS clients looking for formal guidance. This is not unexpected after the HMRC’s changes introduced principally to stop the abuse of SSAS’s that had increased under pension liberation. A consequence of these changes has been the introduction of a requirement for a “fit and proper administrator”.
This change became effective from 1 April 2014 and it would appear now may be beginning to bite. A key requirement of a “fit and proper administrator” is that they must “have sufficient working knowledge of the pensions and pensions tax legislation to be fully aware and capable of assuming the significant duties and liabilities of the scheme administrator” or employ “an adviser with this knowledge”.
Responsibilities of a scheme administrator include:
• registering the pension scheme with HMRC
• operating tax relief on contributions under the relief at source system
• reporting events relating to the scheme and the scheme administrator to HMRC
• making returns of information to HMRC
• providing information to scheme members, and others, regarding the annual allowance, the lifetime allowance, benefits and transfers.
If HMRC becomes aware of information that suggests a scheme may not have a fit and proper administrator, which might be simply as a result of late or incorrect scheme reporting or scheme returns, they will normally raise their concerns with the scheme administrator initially. This would appear to have now started.
If HMRC believes that the scheme administrator of a registered pension scheme may not be a fit and proper person, they do have the power to withdraw the schemes tax registered status which has significant tax consequences for the scheme beneficiaries.
What a well run scheme should have
So what should advisers look out for when approached by self run SSAS’s now looking for help?
A well run SSAS should have as a minimum some informal annual statements drawn up detailing contributions paid, assets held, income received and benefits paid. Ideally individual member statements should have been prepared annually detailing the contributions received for the member and the value of the proportion of the fund allocated to that member. The latter are required to satisfy the disclosure legislation relating to occupation pensions which, of course, includes SSAS’s.
Assets should also be properly administered. This should include documentation confirming good title and ownership of the investment and frequent valuations. Where more complex investments exist further information should be held. For commercial property, as an example, leases and rent reviews should be documented and up to date. Rent, where due from a connected party, should be evidenced as being on arm’s length terms by a professional valuation. Where a loan back exists, this should again be documented with a schedule of repayments along with details and documentation of security held where the loan is to the founder or associated employer.
Where failings may occur
It is not uncommon to find failings. A feature of one or two SSAS cases referred recently has been the absence of a designated scheme bank account with cash sometimes being washed into the employer company’s own accounts. Whether by design or by naivety the founder having had use of the pension fund cash will be deemed by HMRC as an unauthorised employer payment and effective from the date the funds first hit the employer’s bank account a tax charge will have been triggered.
Other less obvious breaches can occur. The rules concerning lending to the founder employer have been tightened since 2006 and require each individual loan to the employer to be secured by a first charge and appropriately documented. We have seen instances of documentation being missed or incorrect. In one case the loan had been properly documented and allowed for annual repayments of capital which had been made but which were “borrowed back”. Although the borrowed back amount was within the value of the original loan agreement, being a secondary loan, it too should have been individually documented and the failure to have done so again triggered a tax charge.
If found, the best route is to correct any error immediately. Some minor breaches such as the late filing of the scheme’s annual tax return can sometimes be made good without HMRC raising an issue. Some internal administration errors can be brought up to date without reference to HMRC. It is possible that the change of registered administrator to a firm known by HMRC to meet the fit and proper criteria may give HMRC some comfort and they might be less likely to pursue small breaches.
One thing that is clear though is that schemes without professional guidance will be more likely to offend the legislation and HMRC guidelines. HMRC now have the power to request scheme files and documents and pursue those schemes where administration errors and abuse has occurred with the prospect of heavy financial penalty.
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