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How safe is your SSAS?

What protection exists for SSAS pension schemes?
How safe is your SSAS?

I am responsible for running my company’s SSAS pension scheme. It’s administered by Barnett Waddingham and we use TD Direct as our direct share platform. I notice it are now owned by Interactive Investor. If our shares are held in a protected nominee company, then presumably they are safe. The TD website only refers to a limit of £50,000 compensation per account, so I don’t know if the pension shares are held safely or not. Can you say if they are?

G Oates

There is no single umbrella protection for small self-administered pension schemes (SSASs) as such, instead different types of protection apply depending on where a problem arises. SSASs are typically set up by directors of a company or the business owners, to allow them to manage their own pension fund. The advantage of an SSAS is that it allows great flexibility when it comes to the underlying investments and this is a key attraction because it means greater risks can be taken. Also, loans back to the business are permitted.  

Each SSAS will be set up as a trust and the members of the scheme will be the trustees. The scheme provider – in your case Barnett Waddingham – sets up the trust structure, registers it as a pension scheme with HMRC and deals with administration. The buying and selling of investments will be done by the trustees using a trading platform or broker such as TD Direct, as in your case.

The first layer of protection comes from the trust structure of the scheme. The SSAS itself is not a regulated product, but as schemes are set up as trusts, this means your investments are legally ringfenced and therefore should never be at risk should the trust administrator collapse. If an administrator collapsed, you would move your assets to a new administrator. Trust providers can apply additional safety measures against fraud and extra checks – for example they might require all transactions to be approved by a second individual.

A second layer of protection comes via the Financial Conduct Authority (FCA) authorised stockbroker you use. TD Direct says all client cash and investments are held separately from the company. This means that in the event of a collapse of the broker, any of your assets, such as shares held by TD, will be ringfenced from creditors. In the event of fraudulent activity at a broker that results in nominee account losses, and the Financial Services Compensation Scheme (FSCS) agrees that the losses are covered, claims can be made on the scheme’s funds. And claims will be allowed for each individual member of the pension scheme so £50,000 per person rather than one £50,000 claim for the SSAS. Bhavik Depala at the FSCS confirmed that “the FSCS must… regard the individual members of the scheme as having a separate claim for up to £50,000 each”.

Thirdly, all FCA regulated investments – for example unit trusts and other collective investments –  held by your SSAS are covered by the FSCS in the event of fraud, default or collapse. So let’s say a fund in which your SSAS has invested £160,000 collapses because of fraudulent activity, then each member of the scheme will be entitled to claim back their “portion” of that investment. However it is important to note that where a claim is made, any other holdings that scheme members have in the collapsed investment or failed bank will be included in the claim they make. James Jones-Tinsley, self-invested technical specialist at Barnett Waddingham, says it is understood that the compensation limit will apply on an individual basis, taking into account an individual’s entire holdings with that investment provider, spread across both personal and pension assets.

“For example two members of an SSAS might have an equal share in an £80,000 holding of a regulated investment or product and so they would have a claim of £40,000 each if that investment or product failed. However, if one of the members also had personal holdings of £100,000 in the same investment, this would be combined,” he says. In this case their total individual claim would be for £140,000 and so in theory they would only receive back £50,000.

Investments that are not regulated by the FCA are not covered by the FSCS. This includes commercial property and loans. And of course the FSCS does not protect against losses arising from investment performance, including shares held in a company that has become worthless on its collapse

But cash deposits, typically held in a bank account linked to the trust, are covered by the FSCS. Here, the compensation will be up to £85,000 per scheme member. So if there are four members of a scheme and £100,000 owned equally has gone missing from the current account linked to the Trust, then each member would be able to claim £25,000.

One last point worth making is that the Pensions Regulator has been warning about the dangers of scammers targeting SSASs, particularly where the SSAS has a single member. As the “investments” offered by the scammers will be unregulated, there is no protection in place to bring back funds lost this way. Schemes should download the regulator’s pension scams booklet for members here