Our Group SIPP launches this month and provides a pooled investment fund in an effective way. Typically it will appeal to business professionals wanting to use their pension money to buy property, but it works in any situation where pension funds are pooled.

We also cover a number of topical HMRC issues, with guidance on what is involved and what to look out for.

Group SIPP

We are pleased to launch a new product, the Group SIPP. This is a SIPP specifically designed to offer a pooled investment fund for a group of individuals in an effective way.

Each Group SIPP is established as a separate SIPP product with its own HMRC registration. Members would be a group of linked individuals who wish to pool their pension assets. Typically these will be business professionals wanting to buy property, e.g. a group of doctors or dentists looking to buy their business premises, but the product can be used for any situation where funds are pooled.

We have been operating this type of group SIPP for some time but significant demand from advisers has led us to promote it more widely. The product is based on the standard Curtis Banks SIPP, which has a Defaqto 5 star rating, with a number of modifications:

• Administration systems are tailored to the operation of a single fund. There is a single bank account for collection of rents, payment of expenses etc, with allocation of all payments to individual members. Borrowing on property can be arranged as a single loan, rather than individual loans for each member, greatly simplifying the process with lenders.
 
• By pooling funds, individuals with modest pension funds can gain access to investments which might be unavailable to them acting on their own.
 
• The charging structure is tailored to reflect the nature of the product, making it very cost-effective. For example, only one property fee is charged, rather than fees paid individually by each member.
 

Operating a pooled fund using normal individual SIPPs can get very untidy and we have developed a product which works much better. We have seen a strong level of demand and the product is tried and tested and we now want to make it more widely available.

Scheme Pensions

Some of the detail in the new A-Day rules is still being clarified, some 4 years on, and we aim to keep you in touch with the latest developments. Here we look at Scheme Pensions, their history and a particular point which has now cropped up with HMRC. (For more information on what Scheme Pensions are and how they work, refer to our Scheme Pension notes online).

Looking back to A-Day, it is fair to say that the possibility of Scheme Pensions being provided in SIPPs and SSASs was initially regarded with some wariness. Gradually, though, the majority view has become that this is acceptable and for SIPPs in particular the "Family Pension Trust" product has developed as a vehicle for providing scheme pensions and several operators have entered this market, with more on the way.  A major seal of approval arrived last year with the launch of the Axa Family Suntrust by one of the industry giants. For our own part, we took expert advice before launching our own Flexible Family Trust product last year and we also have a legal opinion confirming that Scheme Pensions can be provided by SIPPs and SSASs.

So far so good, and HMRC themselves are not arguing with the ability of SIPPs and SSASs to provide Scheme Pensions. However, they are now raising an issue on the ability to make a future reduction in a Scheme Pension in a single member SIPP, contrary to the general industry understanding, and this needs to be taken on board.

To explain the nitty gritty, a Scheme Pension must be paid for life and a future reduction may become necessary because of investment performance or increased life expectancy. Legislation allows Scheme Pensions to be reviewed periodically and reduced if necessary, and most operators provide for reviews every 3 years. A condition of this is that all the Scheme Pensions in a scheme must be reduced at the same rate. In law, "Pensions" includes the singular, so the legislation allows a Scheme Pension to be reduced in a single member SIPP. However, HMRC are saying that it only applies in the plural, i.e. the rule allowing reductions cannot apply to a single member scheme. Technically they are wrong, but it has become apparent that they are not keen on single member schemes providing Scheme Pensions.

The consequence of what HMRC are saying is that, if the reduction is not allowable, future pension payments after the reduction would be unauthorised payments, potentially taxable at 55%.

It is frustrating that, more than 4 years after A-Day, issues like this are still cropping up. The point is being argued by our industry and it may be a while before the outcome is known, though it does seem to be something which is capable of being sensibly resolved. In the meantime we recommend that any Flexible Family Trusts we set up are capable of having at least 2 members drawing Scheme Pensions by the time that a future pension review leads to a possible pension reduction.

Tangible movable property 

A key question, when looking at whether an asset is acceptable for a SIPP, is to ask "is it movable"? HMRC rules contain a definition of "tangible movable property" and any investment under this heading will be heavily taxed.

The original purpose of this definition was to cover the usual suspects of classic cars, yachts, antiques etc., which was to be expected. If it was an object which could be moved, it would be heavily taxed as a SIPP investment, and therefore to be avoided. Clearly, objects much less exotic than classic cars are caught by this definition as well and cannot be put in a SIPP, but everyone had a pretty clear idea of whether a particular object was movable, and we all thought we knew where we stood.

Recently, though, there are reports of HMRC blurring the boundaries on what is movable property. An example is fixed plant and machinery, which they are suggesting is movable, in one case we understand this has been applied to a large piece of machinery bolted to the floor where the factory roof would need to be taken off in order to move it!

As a result, care may be needed on other potential SIPP investments. Forestry is an obvious example, this has historically been a fairly conventional pension scheme investment and logic would say that a tree is not movable, but can we be sure that HMRC feel the same way? It would be a pity if the rules prevented investment in trees, as many such investments are ecologically beneficial, but for the time being we are urging caution in this area.

Other unusual investments may be caught in the same way, and another potential downside is security on loans. We already know that movable property can be charged as security for loans from pension schemes, but if the security is triggered then there will be a tax charge. That's understood, but pension schemes will now need to be much more careful on what assets will potentially be caught by this.

Hopefully more clarity will be forthcoming on this point - our trade body has taken it up with HMRC with the aim of arriving at a proper solution. In the meantime, the definition of "movable" has become a grey area and we will all need to be cautious in advising clients on suitable investments.

Transfers and Minimum Pension Ages

An unintended consequence of the change in minimum pension age from 50 to 55 has been the ability to transfer between pension schemes for anyone between these ages who is currently drawing benefits.

Put simply, HMRC are saying that anyone in this category is not able to transfer to another pension scheme before they reach age 55. The argument seems to be that the new scheme will have a minimum pension age of 55 and they are younger than that and already drawing benefits, so there is a problem.

The legislation was not expected to block transfers in this way and HMRC are working with the industry to see if the problem can be resolved. In the meantime, care needs to be taken to ensure that transfers are put on hold for any scheme members who might be affected.