AJ Bell Group is one of the biggest Sipp and Ssas administrators and trustees in the UK. Many of our Sipps and Ssas give clients the flexibility to hold cash deposits in any UK or Isle of Man deposit-taker and, as a result of recent events in the financial markets, we have been in correspondence with the Financial Services Compensation Scheme in the UK to confirm the arrangements that would be in place for our Sipps and Ssas if a UK deposit-taker fails.
One of the main reasons we have sought this clarification is to establish whether Sipp and Ssas investors were treated differently from “individual” investors.
To explain further, the Sipps and Ssas that we administer are trust-based pension schemes. We administer these schemes using a number of different models:
Model one Sipps are structured on a single trustee model, that is, the only trustee of those pension arrangements is one of our trustee companies, Sippdeal Trustees. The pension scheme member is not appointed as a trustee but is the primary beneficiary of the Sipp.
As a result of this, all bank accounts are opened in the sole name of Sippdeal Trustees although each individual bank account is opened separately, that is, we do not open a single bank account covering all the Sipps.
Model two Sipps are structured on a joint trustee model, that is, one of our trustee companies is app-ointed as a trustee but the pension scheme member is also appointed as a trustee.
As a result of this, the bank accounts are opened in joint names – our trustee company and the member trustee. Again, individual bank accounts are opened for each individual Sipp. Again, the pension scheme member is the primary beneficiary of the Sipp.
Ssas are also structured on the joint trustee model. The main difference with a Ssas is that there will often be more than one member trustee, meaning that the account may be opened with, say, five individuals and the trustee company all named as joint holders of the account. Again, each Ssas will hold an individual bank account. The Ssas members will be the primary bene- ficiaries of the Ssas.
Our main concern is that, for the purposes of the compensation arrangements, the fact that accounts are structured in one or more of the above ways might mean that the compensation available is “pooled” between all the accounts opened with a particular deposit-taker or not available at all.
For example, say we opened 30 accounts with “Isle of Man-based Bank” in model one Sipps, all of those accounts being opened in the sole name of Sippdeal Trustees, and that bank failed.
Would each of those separate 30 accounts benefit from individual compen-sation or would the compen-sation be pooled between those 30 accounts because the accounts were all held in the name of Sippdeal Trustees (albeit with the beneficial ownership being held by the 30 different pension scheme members)?
We have received written confirmation from the FSCS that individual rather than pooled, compensation will be available for all of our Sipps and Ssas holding funds with UK-based deposit-takers and obviously if the position is different in the Isle of Man, this is something that our Sipp and Ssas members will need to consider when deciding whether to deposit funds in the Isle of Man.
I have looked at the Compensation of Depositors Regulations 2008 and have noted that there is reference to compensation being payable to “individuals beneficially entitled to the proceeds of the deposit”.
I would take this to mean that our Sipp and Ssas deposits are covered as the beneficial owner is an individual.
However, we have been in contact with Susan Woollard at the Financial Supervision Commission who has confirmed that her understanding of the regulations is that, currently, they only cover individual depositors and not companies or trusts.
We also understand from Woollard that amendments are shortly to be made to the regulations because of serious concerns on the Isle of Man that companies and some trusts may not be covered.
Based on the level of deposits we hold in Isle of Man bank accounts, I would make a very conservative estimate that the total held by all Sipp and Ssas providers in the Isle of Man would be well over £100m. This, of course, ignores registered pension schemes other than Sipps and Ssas.
If amendments are being proposed for the legislation, we strongly urge you to ensure that these amendments provide cover to UK-registered pension schemes and that confirmation is provided that Sipps and Ssass are covered.
It is clearly not an acceptable risk for trustees of pension arrangements to hold that level of funds in Isle of Man banks without definitive confirmation that they are covered. If this confirmation is not received, we will be obliged to advise our customers and advisers of this fact so that they have a chance to remove their deposits. Based on our experience of clients’ reaction to negative information regarding specific banks or compensation schemes, we would expect the immediate withdrawal of most of our Sipp and Ssas deposits in Isle of Man banks.
We will also contact the Association of Member-Directed Pension Schemes so that they can make all Sipp and Ssas providers aware. Given the sums involved, an immediate assurance that you intend to cover Sipps and Ssas would be appreciated.