The SSAS can’t do certain things (as outlined by HMRC) and a good scheme administrator will guide members through the legislation advising them what they can and can’t do. For 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 as he was only 50 years old and in good health. Joe wasn’t bothered and did it anyway –Joe has now made an “unauthorised payment”. Translated, that is doing something that is not allowed which is now subject to a tax penalty.
This has 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. 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 scheme administrator, 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 scheme administrator.
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 scheme administrator is liable for the penalty of that mistake.
If you go back to the “anyone can be a scheme administrator ” question, you can now see why we suggest your answer to that question be “no”.