We have written an easy to read guide to explain what a Scheme Administrator is and this will hopefully answer any questions you may have. Once you have read the guide, if you have any questions, please ask away.
Every SSAS must have a Scheme Administrator (let’s abbreviate this to “SA” to cut the article text down) and they must have one because HMRC says so. The SA is responsible for lots of jobs and a few of the tasks are as follows:
– Telling HMRC about events that have happened under the scheme
– Making returns to HMRC – the annual return is an example which is similar to a tax return
– Telling the members mandatory information for example, what retirement benefits they are receiving and what the value of their scheme is
– The worst one…paying certain tax charges!
If a SSAS does not have a SA or the SA acts improperly, HMRC may deregister it. This basically means that the SSAS loses its tax privileges and would be paying a large nasty tax penalty as consequence!
Would you want just “anyone” to do this role for you? We would suggest your answer to that question be…no.
Let us give you a bit of “why and when” to explain the reasons why.
The pension’s rules changed in 2006 and before this time, a professional trustee was mandatory. This trustee was basically the “pension’s police” and were responsible for making sure the scheme towed the line of rules and regulations. HMRC were not messing, they wanted pension schemes looked after so that the funds were not misused.
However, for reasons only known to HMRC, in 2006 they took away the professional trustee requirement. They replaced the role with the SA and declared that SSAS’s did not have to have a professional trustee. That meant that anyone could be a SA and the result of that decision was “pension liberation”. If you don’t know what this is, go to our website and look at our newsletter “Pension Liberation” from May 2013 or if you simply search it on the web, you will see what we mean. Basically it meant lots of money was scammed out of pension schemes and a lot of people were robbed of their pension savings by naughty advisors.
HMRC have now taken steps to put a stop to this and introduced the “fit and proper” test.
Here is a shortened and clear interpretation of HMRC’s fit and proper test:
The SA has to be capable of competently performing the responsibilities of the role. There should be nothing in the SA’s past behaviour to suggest they should not be responsible to fulfil this role.
The SA must have sufficient knowledge of pensions and tax legislation and may not act if they have been involved in pension liberation, tax fraud, abuse, ID theft or have ever been disqualified from acting as a company director or are bankrupt.
As you can see, the SA role is pretty important and should only really be done by someone who has an extensive knowledge of pensions. A few SSAS administration companies won’t act in this role and they pass the role onto a scheme member who, unbeknown to them, has just signed up for a world of responsibilities for the whole scheme and the worst….potential tax fines on them personally!
The SSAS can’t do certain things (as outlined by HMRC) and a good SA will guide members through the legislation telling them what they can and can’t do. So for the purpose of this example, Joe wanted to take some money out of the pension scheme to buy himself a new car and PensionAdmin told him this was absolutely not allowed. Joe wasn’t bothered and did it anyway –Joe has now made an “unauthorised payment”. Translated, that is doing something that is not allowed by HMRC’s rules.
This has pretty ugly tax charges and straight away, Joe is going to be penalised 40% of the amount he has taken by HMRC. That is called the “unauthorised payment charge”.
There is also the “scheme surcharge” which is another penalty applied by HMRC and this is charged if the amount of the unauthorised payment reaches over 25% of the value of Joe’s pension scheme over a time of 12 months. Let’s assume this isn’t the case for Joe but if it was, he would also have to pay this charge.
Lastly, it’s the “scheme sanction charge” and this is payable by the Scheme Administrator. I repeat…this charge is payable by the Scheme Administrator. This charge is between 15% and 40% of the amount Joe has taken and the amount charged depends on whether or not the unauthorised payments charge has been paid.
Hopefully you can now see where we are going with this.
There are a number of issues; firstly, if the member’s current administrator has appointed them as SA, they are now aware that they are liable for tax charges – even if it isn’t them that has made the unauthorised payment. This is a real problem in that sometimes, the person who took the unauthorised payment is NOT the SA.
Secondly, if the schemes administration company has told the members that they can do something and it turns out they cannot (this is very common), the SA is liable for the penalty of that mistake.
If you go back to the “anyone can be a SA” question, you can now see why we suggest your answer to that question be “no”.
We act as both SA and professional trustee so we act as a trustee alongside scheme members. As co signatory to the SSAS assets, we offer the scheme and its member’s protection from unauthorised payments and the charges that come with them. Some other administration firms may say “we do not act as professional trustee to give the members true flexibility to do as they please” but they will also not act as SA. So in reality, they are giving advice to members on what to do with their SSAS with no liability whatsoever.
On a final note, we are seeing that more and more financial institutions will no longer place investments or open bank accounts for SSAS’s that do not have a professional trustee or Scheme Administrator. Barclays Stockbrokers and Cater Allen Private Bank are amongst these companies. Their stance on the matter is that they may become liable for aiding “unauthorised payments” by releasing funds that may not be used for the purpose of the pension scheme whereas a professional trustee and SA would not allow this.
We hope this has helped you understand this role and as always, if you want any clarification on anything at all, please get in touch.
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