Several self-invested pension providers have called for the regulator to re-examine the case for commercial property being classified as non-standard which would require firms to hold more capital, as the sector booms on the back of a reprieve in final capital adequacy rules.
This week another Sipp specialist passed the 1,000 properties mark, as Barnett Waddingham announced total value of properties on its books had surpassed £300m.
Other providers similarly confirmed that commercial property transactions are surging, as Rowanmoor disclosed to FTAdviser it has more than 6,000 properties across its Sipp and Ssas books and Suffolk Life confirmed it has 3,500 and expects to acquire over 300 new properties this year.
In August the Financial Conduct Authority confirmed UK commercial property would remain a ‘standard asset’ within Sipps for the purposes of capital adequacy, in a move which represented a U-turn and a repreive for providers which would have been forced to hold more capital reserves.
However, the regulator still requires that all assets must be transferrable within 30 days, otherwise it will be deemed non-standard. This has given rise to suggestions that many - or even most - commercial property held should be classified as non-standard.
Greg Kingston, head of marketing and proposition at Suffolk Life, accepted that while an entire Sipp business could be transitioned to another provider in the event of a business wind-up within 30 days, it is a highly unlikely scenario.
“For normal commercial property transactions (both with and without a pension involved) we asked a local solicitor what their experience was, and the average time to transact was in excess of 70 days.
“If there’s doubt, then why not class all existing UK commercial property as non-standard and then assess new properties as standard if they complete within 30 days of instruction or non-standard if they take longer?
“The capital adequacy rules are there to provide protection for investors, not for Sipp providers’ balance sheets.”
Martin Tilley, director of technical services at Dentons, which has 1,168 properties its Sipp book, told FTAdviser that he would like some clarification on the 30-day rule, as the market should operate to a common policy.
“For example, a freehold commercial property owned outright by a single Sipp with no mortgage, we would regard as standard. However, a leasehold property, held jointly with another party on which a mortgage exists might require agreement of the lender, the co-owner and the superior landlord to sell of transfer and this might not be achievable in 30 days.
“Also syndicated direct commercial property might require a share of the property to be first offered to other syndicated members, and this might also take longer than 30 days.”
John Fox, director of Liberty Sipp, which has 108 properties in its Sipp, views it slightly differently, suggesting that the 30-day Sipp transfer is “virtually impossible” and therefore property has to realistically be considered a non-standard product.
He stated that property has historically been a very popular investment within Sipps, but the 30-day rule is one of the reasons why the Association of Member-directed Pension Schemes moved forward with a judicial review into capital adequacy rules for Sipps.
Claire Trott, head of technical support at Talbot and Muir, which administers 536 properties in Sipps and 750 in Ssas, said that, provided a pension scheme has the appropriate due diligence on a property in the first place, moving it to another provider within 30 days should not be an issue.
“The reason due diligence is essential is so the title is clear and the receiving scheme can see all the documentation needed. In most cases as the property will be held by a trustee company, if the administrator were to fail, the trustee company could be taken over without the need to actually re-register the assets.
“There will be cases where properties are held differently and this by some provider which could mean that the 30 day rules would be harder to satisfy.”
peter.walker@ft.com
Additional reporting by Ashley Wassall.
