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Rowanmoor says IFAs could face claims of Ssas misadvice

IFAs who failed to consider small self-administered schemes in their advice to clients when banks cut back on small business lending could face accusations of misadvice, says Rowanmoor Pensions.

A Ssas allows the sponsor company to take a five-year loan of up to 50 per cent of the net market value of the scheme’s assets.

Head of technical services Robert Graves says such a facility could have eased cashflow strains for certain firms during the economic downturn.

He says IFAs who ignored it as an option in favour of the “ubiquitous Sipp” have left themselves open to potential complaints. He says: “If an IFA has not even considered offering a Ssas as an option to their client, they are leaving themselves open to accusations of misadvice.”

Graves, who is also chairman of the Association of Member-Directed Pension Schemes, adds: “A Ssas is still a valid and important tool for small businesses in particular. The primary reason at the moment is around the lack of accessible credit from banks to those small businesses.

“Therefore, had a financial adviser advised a client to have a Ssas rather than an individual Sipp, they could well be in a better position than they find themselves now.”

Bloomsbury Financial Planning partner Jason Butler says: “The fact that you do not offer a Ssas in itself is not bad advice if there was not an identified need for lending or borrowing in the terms of reference.

“A loan from a pension cannot be used to keep an ailing business afloat. Do not confuse cash burning when a business is in decline with the need to grow the business.”


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. So if they borrow the money from their pension scheme and then the company goes bust that is good advice is it?

    A pension is a savings vehicle for the members retirement not a loan vehicle or for saving a business that is failing or has cash flow problems.

    If they can’t borrow the money via other normal methods (shareholders, normal lenders etc.) then if you were a pension trustee would you lend the the money, lack of credit or not?

    Rowanmoor should know better.

  2. To Michael Fallas ~ Spot on. Loans from a SSAS are supposed to be ONLY to aid the development and expansion of a healthy business, not to prop up an ailing cashflow position.

    Though I’ve not been involved with SSAS’s for many years (thank God ~ they were all a bloody nightmare, one way or another), my recollection is that any application for a loan had to be countersigned by the company’s accountant or auditor confirming that the loan was required specifically for a development project and not to help stop to a decline into insolvency. But, of course, accountants (with all due respect to that profession) aren’t experts in such matters and in most cases would countersign the application mainly because the owner/s of the business paid their fees and would assure them that there’d be no comeback if the whole show went belly up. To have refused would have been to lose a client, even if the accountant new very well that the firm was struggling to keep its head above water.

    I saw more than one company take a loan from its directors’ pension scheme (not on my advice) and go to the wall just six months later.

    Advising a company to take a loan from its pension scheme as a last resort to save it from going under because all other sources if finance have been exhausted is highly irresponsible, in fact probably not that far removed from criminal.

    What are your qualifications, Mr Graves?

  3. agree with Michael how can it be better to lose money from your pension?

  4. In response to Julians observations it is my understanding that HMRC no longer stipulate the old “Cannot be used to keep an ailing business afloat” mantra.

    Since A-day there are 5 tests to meet one of which is that the loan must be secured on a first charge basis on an asset of at least equal value to the loan (usually commercial property).

    As always though the Trustees must satisfy themselves that it is a prudent investment.

    So its not as irresponsible as you may think.

  5. Just forgot, did I need loads of qualifications for that piece of “common sense” or would someone as well qualified as a McDonalds shift manager know that?

  6. @PensionMan

    It is irresponsible in my view for a respected pensions provider such as Rowanmoor to try to claim advisers who do not consider SSAS’s for companies needing to raise finance without pointing out the downside as well.

    Scare tactics if you ask me to get business which is a concern but maybe this article has not reported all that was said, just the scary bit.

    Secured on a property may still pose high risks in the current climate. I remember what happened to property prices in the last property crash!

  7. To PensionMan ~ spot on. Loans from SSASs must be secured with a first charge.

    Sounds like Julian Stevens is living in the (Pre A-Day) past…

    So, maybe Mr Graves, who deals with SSASs on a daily basis, is more qualified than him to post an opinion in this instance?

  8. A good ‘rule of thumb’ might be:

    would the SSAS Trustees lend the same amount on the same terms to an unconnected party of comparable standing?

    and would the company’s existing bank lend the amount required? The Inland Revenue could question a loan granted to a company that has substantial borrowings with the bank especially where the bank has refused the additional credit.

    No a simple area and expert advice is certainly needed in my view.

  9. It is immaterial whetehr thr rules allow it or not. If you want to play scare stories I can think of a mor likely complaint against an IFA for reccomending this course of action than NOT. I would have no qualms about using a SSAS if I thought it appropriate for a client in preference to a SIPP (except for teh fact I don’t know enough about one to arrange it and would sub out the work to a specialist), BUT common sense tells me, if you advise both the owner of a company AND their spouse, if the spouse is not ,made aware of the extra risk of lending to the business purely to keep it afloat, then there is a conflict of interest which cannot be managed and if you proceed without the spouse’s involvement, your PII will get hit big time.
    Let’s use some common sense please, use the right product for the right purpose and if we are to plat scare stories, let’s have advanantages and disadvantages of both courses of action please.

  10. Exactly what interest rate should the prudent and commercial pension trustee charge an ailing business whom presumably has been refused borrowing elsewhere and is tapping the owners/directors/snr employees own pension scheme for funds?,

    Sounds like a job for QuickQuid at 2278%apr (as per the TV advert & their website not FSA regulated of course)

    or am I still limited to average of 6 high st banks (are their 6 left?) +1%.

  11. I think Mr Graves should be a little more careful in future with his comments about accusing IFAs of not giving proper advice. After all , it is IFAs who write New SSAS Business and his firm wont gain many friends in the IFA community with accusations like this! Perhaps their new SIPP product is not selling well, hence they are drumming up interest in the SSAS option?

    That said, a SSAS Loan does offer an opportunity for some companies to restructure their existing borrowing, if the Directors have sizeable pension plans. SSAS Lending is at base + 1% and this rate can be fixed for the 5 year term. This borrowing at 1.5% interest will be considerably cheaper than repaying the banks who are likely to be putting pressure on SME`s to reduce their existing borrowing.

    Security is likely to be an issue as it must be 1st charge and often the main company asset, their property, already has an existing mortgage on it.

  12. Hyman Wolanski (MD, Sippchoice) 22nd October 2010 at 9:15 pm

    In my experience (and I speak as someone whose company offers both SIPP and SSAS services):

    1. IFAs who specialise in pensions are fully aware of the relative benefits of both SIPPs and SSASs and know when to recommend a SIPP and when to recommend a SSAS.

    2. The HMRC requirements for security and for regular repayments of capital and interest are a major obstacle to SSAS loanbacks, especially for those companies who are struggling with bank finance.

    3. It is usually possible to switch from a SIPP to a SSAS if circumstances change and a loanback is required after the SIPP has been set up.

  13. To the anonymous contributor who accuses me of living in the pre-A Day past, you may note that I made quite plain that I’ve not advised on SSAS’s for many years and my comments were made quite openly from that perspective.

    That having said, I find it difficult to understand the logic behind HMR&C having relaxed the rule (and thus the general principle) that loans to the sponsoring employer should be only to assist with its development rather than to fend off an ailing cashflow position. I think that most responsible advisers would consider themselves under a professional obligation to warn the company in the strongest terms that whilst the conditions on which money may be borrowed from the directors’ pension scheme may not be as strict as they used to be, to do so primarily to save the company from going under may be no more than postponing the inevitable as well as knocking a major dent in their pension funds.

    Loans secured against a property are all very well, though it is worth bearing in mind that the principal reason that many small companies set up a SSAS in the first place is to buy the very property from which the company trades. So the likelihood of the company owning a different property against which a loan from the SSAS might be secured is perhaps not very great.

    And ~ finally ~ I always found one of the worst things about a SSAS to be the fact that the members were virtually always the directors of the company and they in turn would also choose themselves as the trustees, so you’d end up with a group of people who knew and understood very little about the whole subject being required effectively to wear three hats. If anyone out there is able to cite a worse recipe for conflicts of interest, I’d be interested to read it.

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