PensionsAug 6 2015

Suffolk Life stands alone on property 30-day rule

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Suffolk Life stands alone on property 30-day rule

Ahead of final rules on adviser capital resource requirements, one self-invested personal pension provider has rallied against its peers by stating that the 30-day rule for commercial property could lead to consumer detriment.

At the end of May, the Financial Conduct Authority published its long-awaited consultation on the issue, required before its predecessor’s capital adequacy changes are scheduled to come into force in September 2016.

The paper raised fears that some Sipp firms will brand commercial property as a ‘standard’ asset so they do not have to put aside additional funds, despite the regulator’s clarification last year that commercial property should be labeled as a ‘standard’ asset, despite lobbying on both sides of the camp.

Sipp operators can choose to classify commercial property as a standard asset and put aside less capital, if it can be readily realised within 30 days.

In its response to the paper, Suffolk Life’s head of insight Greg Kingston claimed the 30-day rule is unachievable and classifying commercial property as a standard asset risks insufficient capital reserves that may lead to consumer detriment in a wind up scenario.

The firm’s consultation response contained supporting evidence from an independent law firm, whose experience showed that only around 10 per cent of commercial property transactions completed within 30 days.

“The regulator’s concern of the risks posed by elements of the Sipp market remains constant and undiminished and it would be inconsistent, at this final stage of consultation, to now relax the capital framework intended to mitigate those risks of future consumer detriment,” added Mr Kingston.

Others in the market held differing views, with Dentons Pension Management director of technical services Martin Tilley, said that, backed by a firm of legal conveyancers within their group, where all parties are willing, he was certain that most properties can be transferred within the 30-day period.

“I can agree that the lack of guidance in determining what properties should fall into each category is worrying, meaning that individual Sipp providers are at liberty to take their own view,” he commented, adding that this could lead to a distorted measurement of capital adequacy requirements which makes comparison by intermediaries problematic.

“Our own view is that without definitive guidance, individual Sipp providers must look to categorise each property asset in their portfolio and determine, with reasoning why it should be standard or non-standard.”

The Association of Member Directed Pension Schemes’ response to the consultation sought clarification as to when the 30-day clock starts from.

Neil MacGillivray, head of technical support at James Hay and chairman of Amps, said that this is key, as if the FCA confirms its current understanding then the majority of UK commercial properties will fall into standard assets, which they believe is correct.

“Commercial property, though complex to administer, has been the backbone of Sipp industry since inception and has caused little concern over the years.

“What also has to be remembered is that an increase in cap ad will lead to increased cost to the member.”

He added that Amps has been “fully supportive” of the increase in cap ad, but the amount required by Sipp providers must be “reasonable and fair”.

Claire Trott, director and head of pensions technical at Talbot and Muir, said the 30-day change showed that the FCA understands that in many cases commercial property is the bread and butter of Sipp providers, “and therefore although most property transactions probably aren’t completed within 30 days doesn’t mean they aren’t capable of doing so should they need to be”.

She admitted there are issues with some, such as properties jointly owned with another person or company that could be seen to cause a significant delay, which would be difficult to justify as a standard asset.

“Sipp providers are following the guidance, I don’t believe are trying to get around the capital adequacy by treating them as they are.”

peter.walker@ft.com