PensionsAug 29 2014

Warning of boom in unregulated pensions

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Providers and advisers have warned of a potential rush to unregulated pension alternatives as a result of the regulator’s capital adequacy crackdown, which many say will increase Sipp fees and leave fewer willing to facilitate so-called ‘non-mainstream’ investments.

Earlier this month the Financial Conduct Authority published its long-awaited capital adequacy policy statement, which confirmed a four-fold increase in the minimum capital reserve Sipp firms must hold and a more onerous regime for those holding esoteric assets.

Sipps firms will from next year be required to hold a minimum of £20,000 in reserve, with the exact amount based a calculation of assets managed with a ‘surcharge’ for ‘non-standard’ investments such as overseas property or unregulated collective investment schemes.

As a result, some claim unscrupulous overseas advisers in particular may seek to tempt savers into overseas pensions outside of the FCA’s remit such as qualifying recognised overseas pension schemes (Qrops) and qualifying non-UK pension schemes (Qnups).

Others have cited the rise in interest in unregulated UK alternatives such as small self-administered schemes, with predictions of ‘one man’ Ssas being launched to compete with Sipps.

Geraint Davies, managing director of Surrey-based Montford International, which specialises in providing advice to migrants including on Qrops and Qnups, told FTAdviser he has “seen droves of overseas advisers trying to get clients into the Qrops market”.

He said: “They are giving free appraisals and are not charging fees; this is all because of the new cap ad rules. Clients are being targeted by overseas advisers that come and go as they please.

“The cap is good for Sipps but where one door is closed, another one opens... The cap ad does not apply to the other vehicles and we have already seen one-man Ssas opening up.”

Mr Davies added a key concern of this potential “scandal” is that the Financial Ombudsman Service will take a blanket view and label all advice into Qrops as unsuitable, “like they have done with Ucis”.

Adam Wrench, head of product and business development at pension and Sipp provider London and Colonial, said: “We expect providers to put Sipp fees up... We expect to see more non-regulated assets in non-regulated vehicles.

“There may be situations where clients are better off in a Qrops with non-mainstream assets but for some clients, they will be driven into these purely because of fees and these will be the promoters of esoteric investments.

“Also Ssas can be set up by an individual and not a registered provider - we know all this is happening already.”

Paul Evans, group chief executive at Brooklands Pensions, added: “Overall Sipp fees will need to increase and we are already hearing that some providers will be looking to pull out of the non-standard asset market place altogether.

“Overall this will significantly increase the opportunity for Qrops which are not and cannot be subject to FCA regulations even though they are under a HMRC reporting requirement.”

Greg Kingston, head of marketing at Suffolk Life, disagreed the new rules would be a boon for non-regulated Sipps, but added that it was a valid question how long Ssas in particular “can remain unregulated”.

He said: “If true [that more will try to use unregulated alternatives] then I’d hope that Ssas providers are prepared for this, as there is evidence that they have increasingly been used as pension liberation vehicles in recent years. One wonders how long they can remain unregulated.”

Claire Trott, head of technical support at Talbot and Muir, said: “It is safe to say that a Sipp would need to increase their fees significantly for a single member Ssas to be competitively priced against it. We have very few single member Ssas and do not expect this to change.

“We do treat our Ssas with the same diligence as our Sipp book, looking at underlying investments. Ssas still have to adhere to pensions rules set out by HMRC, they are also regulated by The Pensions Regulator as with any other occupational scheme.”

A FCA spokesperon said: “The FCA does not regulate Ssas, Qrops or Qnups. However, we do expect advisers to always ensure that an investment or product is right for their client.”