The traditional self invested personal pension market has become too mainstream by allowing investors to invest in esoteric investments and its flexibility has worked against it, provider London & Colonial said.
In an interview with FTAdviser Adam Wrench, head of product and business development at London & Colonial, said that the traditional Sipp market has “got lost” and now mirrors personal pensions.
He also disagrees that one benefit of Sipps is their flexibility with what investments they allow, believing that Sipp trustees are in breach of their duties by allowing esoteric investments.
Mr Wrench said: “A Sipp is a trust and therefore people are forgetting to be a trustee and the duty of a trustee is to look after the benefits of the beneficiaries and to do that with prudence. Would you recommend an investment to your gran? That’s how trustees should operate.
“I am concerned people are forgetting the duties of the trustee. Sipps should be allowed to do what they want as long as the trustee is happy with it.
“If people want to invest [in esoteric investments] they should do this outside of the trust as this pension money belongs to the trustee ultimately and the trustee must look after that until the beneficiaries kick in. You can’t just gamble your pension money. You are not fulfilling the duties of a trustee if you allow that.”
He added that the Financial Conduct Authority’s decision to label commercial property as a non-standard asset, meaning Sipp providers who have this on their books will need more capital adequacy than if they purely had standard assets, has ruined the traditional Sipp.
Mr Wrench said: “There is a disincentive for Sipp providers to operate with commercial property as it is a non-standard asset. The majority of business owners want to put their trade premises in their pension scheme and that is why it should not be classed as a non standard asset.”
He has also joined calls for a return to a permitted investment list, but believes it should extend to Sipps, small self-administered schemes and qualifying recognised overseas pension schemes.
However, he added there would still need to be boundaries as if it is too vague, such as stating that property and land is allowed, “it will be exploited”.
Mr Wrench said: “I think the consensus would like to have a list but of course the devil is in the detail. I think it should be similar to pre-A day but very clearly define what is permitted or people will design products around that. It needs to be specific.”
He believes that if a permitted investment list was installed, the FCA’s proposed capital adequacy requirement of £20,000 would be redundant.
He said: “Cap ad rules are around protecting firms that become wound up. This should be dealt with at the front end, rather than at the back end. We don’t think cap ad requirements are needed if we move to a permitted investment list across the board.”
