IFAs must keep up to speed on all the changes that take place in financial services, a task I do not envy them. I find it demanding enough just to keep on top of the changes to pension legislation.
Despite having spent over 30 years specialising in pensions, and so consider I know a fair bit about pensions, I would not even pretend to suggest that equips me to advise individuals on the best pension product for them.
People have differing views on many aspects of the financial services arena, for example, whether an Isa or pension is the best vehicle for retirement provision. There is no single correct answer, it is dependent upon knowing your client and recommending the best solution for them.
This is the same with the SSAS and Sipp debate. However, this does rely on advisers being sufficiently well informed.
While there are many IFAs who are very conversant with the benefits of SSASs, I fear some IFAs may have believed the post-A-Day hype that a “SSAS is a legacy item” and provi-ded no point of difference to recommended them over Sipps and therefore were now dead. Consequently, advisers may no longer be even considering them as an option for clients. Sipps, it has been said, are “suitable for 99.9 per cent of clients”.
Is this an argument to be accepted without closer scrutiny? As someone who is passionate about member-directed pensions, whether in the guise of Sipps or SSASs, and the benefits they can deliver for clients, I consider it important that the benefits of both types of arrange-ment are aired.
Sipps in their various guises are suitable for a large variety of indiv-iduals such that they are now considered a mainstream product, whereas SSASs remain a niche product as their attractiveness is primarily limited to small businessowners.
It is clearly an IFA’s role to establish whether the features of a SSAS or Sipp or any other product are suitable for the client.
Furthermore, different IFAs may hold differing views as to whether a particular feature of a SSAS is ben-eficial or detrimental and that is fine as long as it is an informed view.
The ability for a SSAS to loan pension fund money back to the sponsoring employer is a key point of difference as Sipps cannot offer this option.
There has been plenty said in the press about the credit crunch adversely affecting the ability of small businesses to get credit or even where it is available, the terms are not favourable, so the loanback feature is a key point for consideration.
Gone are the days when unsecured interest-only loans could be made, albeit the purpose of the loan had to be used for specific capital purchases. Today, a loanback must be secured as a first legal charge on an asset but can be used for any purpose, including for cashflow. It should be recognised that a perfectly viable company can still have cashflow issues but making a loan to an ailing company needs to be judged very carefully, even with the protection of first legal charge security. A first legal charge does not offer total protection for the pension scheme. There is a risk that the value of the asset being used for security may fall below the amount of the outstanding loan. But a loanback is an investment and like all investments there is a balance between risk and reward.
I believe for certain small businessowners it is difficult to differentiate between personal and business needs, “my business is my pension” being a common refrain.
While some may see the joint roles of being a businessowner, pension scheme member and trustee under a SSAS, as creating conflicts of interest, I would say it offers the opportunity to balance their interests but again needs the support of experienced professionals to aid them in making informed decisions.
SSASs have a lot more benefits besides loanbacks, such as a common trust fund structure which is an excellent way of holding joint property investments.
Furthermore, a SSAS can be more cost-effective for three or more members when compared with setting up an equivalent number of indiv-idual full Sipps.
SSASs are not just for the employed directors of small businesses either. Once established, a SSAS can accept non-employees as members, opening up the scope for using a SSAS for other groups.
And with adviser fees being payable from the fund through client agreements, SSASs with their open architecture embrace the concept of RDR.
The crux of the message for advi-sers is to remember to consider the benefits of SSASs. There are oppor-tunities for those in the know and SSAS providers can be relied upon for a lot of support too.