The pros and cons of going it alone

Like to be in control? A small self-administered (SSAS) scheme might be just the thing for you. These Revenue-approved flexible schemes, also known as self-administered pensions (SAPs) offer people high levels of control over their pension investments and the ability to invest directly in property and other assets such as shares and bonds. Unlike typical pension schemes offered by insurance companies, regular contributions aren’t necessarily required, meaning you can make contributions as and when it suits.

That said, they aren’t for everyone. There are pros and cons to this type of pension scheme.

Tony Doyle, AIB’S head of retirement planning, outlines a few advantages of SSASs. “You get control over the investment, control over the cash flow into the pension fund, and to a large degree, within the confines of 50 to 75, you get control over when you are going to retire.”

AIB offers these types of pensions, and Doyle says they work closely with clients wishing to take this route to retirement. "What AIB does is invest money as per instruction from the client," he explains.

“When we are moving to an approved retirement fund, we will isolate the lump sum as we approach the retirement sum. We are continuously speaking to clients about what’s the exit strategy, and how to get the money back out in a sensible fashion.”

Doyle admits that playing an active role in your pension may not be for everyone. “In our case, we will appoint you as the co-trustee, so you need to know what being a trustee is about. You’ve multiple jobs – you’re the sponsoring employer, you’re a member of the scheme. Our job is to ensure that we remain within the Revenue laws and pensions laws.”

There is a prevailing misconception that SSASs are solely aligned with property investment. This simply isn’t true, says Doyle. “It’s a useful tool for investing in anything you want to invest in, including standard funds. The idea that SSAS is only useful for someone wishing to invest in property is outmoded and outdated.”

Greater choice

Colm Power, director of financial planning at Davy, says choosing to go with a SSAS ultimately boils down to two things – greater choice and access to advice. “When done properly, it should lead to better client outcomes,” he says.

Most large pension schemes only provide a very limited amount of investment funds because of the “paradox of choice”, making it easier for people to choose, explains Power. The limitations of such group schemes will be unattractive for a cohort of retirement savers.

“Self-directed pensions open up the saver to the wider universe of investments and allow investors build a portfolio that’s personal to them,” he says.

“Self-directed pension providers also commonly provide wider financial planning advice which digs to the heart of the really important questions. What are your goals? How much do you need to save to achieve them? Are you on track? Are you maximising tax reliefs? We believe that a goals-based financial plan is critical to achieving client outcomes.”

The downsides are not insignificant, however. As Power points out, this advice has a cost. “Commonly, the pension and investment costs are bundled together. It is important to determine whether you are getting good value,” he says. Fee transparency is vital but different firms have different requirements in relation to disclosures, he adds. “Make sure you work with an adviser that is fully transparent on fees and puts the client first.” He also warns that there is the potential of underestimating risk when it comes to the type of investments made in such a scheme.

According to Bernard Walsh, head of pensions and investments at Bank of Ireland, there are a number of disadvantages associated with self-administered pension schemes.

“To make it worthwhile using a self-administered pension scheme, you need to have a very substantial sum of money, given the fees and the costs associated with them,” says Walsh, who adds that Bank of Ireland does not offer these types of schemes.

Indeed, he warns that self-administered pensions are under threat from the forthcoming Institutions for Occupational Retirement Provision (IORP II) legislation currently held up in the courts. This legislation was drawn up following an EU directive that wished to see limits placed on investments in unregulated assets, such as property.

“The regulator and other commentators have also been coming out strongly against one-person company pension schemes, which is essentially what a self-administered pension scheme is,” he adds.