2012 started off reasonably well. Implementation of fixed protection from 6 April was a known factor, protecting members against the drop in the lifetime allowance from £1.8m to £1.5m, part of measures to restrict pension tax relief, which included the slashing of the annual allowance from £255,000 to £50,000 in April 2011.
As discovered from the Chancellor’s Autumn Statement on 5 December 2012 this was just a dress rehearsal for a further cut in the annual allowance to £40,000 and lifetime allowance to £1.25m, due in 2014. Whilst these reductions are not a Sipp specific issue, Sipps are commonly used by high net worth individuals, so Sipp clients could well be adversely impacted by these further reductions. The constant changes also sap confidence in pensions.
Spring, rather than heralding sunshine, saw some dark thunder clouds rolling in. The very things that make Sipps a stand out proposition - investment choice and flexibility - were coming under increased scrutiny as a means by which consumer detriment could occur.
News of investigations into the HD Sipp and its connection to the failed Arck LLP investment, followed by Serious Fraud Office investigations into Sustainable AgroEnergy - a biofuel investment promoted predominantly to Sipp investors - stirred up those concerns.
This issue reignited the debate over a Sipp operator’s duty to undertake due diligence on the investments that they are being requested to invest in by the member or their adviser. There is broad agreement that Sipp operators should carry out sufficient due diligence to ensure that the investment is a bona fide investment and acceptable to be held within the Sipp product, but as to suitability, that is for the client and their adviser to assess. Whille the level of and means by which due diligence is carried out by different Sipp operators may vary, as a whole, investment due diligence has been a significant development for some of the Sipp industry.
This brings us to the FSA. It was perhaps unsurprising that following certain investment failings, the FSA signalled it was considering a ban on the sale of unregulated collective investment schemes. This manifested itself in consultation paper CP12/19, issued in August 2012. It looks beyond Ucis by including investments that are close substitutes and aims to tighten up on their promotion to retail clients. Although Sipp operators do not generally get involved in promotion of investments, it seems likely that it will result in fewer requests from IFAs and clients to invest Sipp funds into such investments, which may impact specialist Sipp operators business.
In October the FSA issued its findings of last year’s Sipp thematic review. It prompted headlines such as “Sipp operators risk causing significant detriment to clients”, painting for many what may be construed as an exaggerated, grim picture of the entire sector, through extrapolating the findings from a few Sipp operators investigated. This was closely followed in November by CP12/29, which rather disappointingly announced that following years of engagement by industry bodies regarding Sipp disclosure, the FSA is to push ahead by effectively defining all Sipps as personal pensions and therefore require all Sipps to comply with the personal pension disclosure requirements. A crumb of comfort is that the onerous implementation has been put back from the end of 2012 to 6 April 2013.
This was followed by CP12/33 outlining new capital adequacy requirements for Sipp operators, which if implemented in full, could put in jeopardy the survival of a not insignificant number of smaller SIPP operators. Ironically and worryingly this could create customer detriment that the FSA seeks to prevent.
Is it all gloom and doom? No. Many Sipp clients use drawdown and during the year have been hit with up to 50 per cent reductions in income. Drawdown could do with a fundamental policy review but the government’s u-turn of reverting back to 120 per cent of GAD is a welcome short-term measure, although no time has been given for this to be implemented. Although not Sipp specific, let us not forget the significant simplification achieved by the Department for Work and Pensions by scrapping contracting out from 6 April 2012.
Finally, 2012 is reckoned to be the year in which the number of Sipps achieved recehes the one million mark, which in itself represents significant growth and a fantastic success story. It moves Sipps from the niche to the mainstream market and as such there has to be some acceptance of change to swim in the ocean rather than the pond.
Events of 2012 represent a challenge for Sipps, but their concept is sound and the industry is resourceful, such that it is hoped that future years may be described as wonderful years, or as the Queen might put it, “Anni Mirabiles”.
2012 started off reasonably well. Implementation of fixed protection from 6 April was a known factor, protecting members against the drop in the lifetime allowance from £1.8m to £1.5m, part of measures to restrict pension tax relief, which included the slashing of the annual allowance from £255,000 to £50,000 in April 2011.
As discovered from the Chancellor’s Autumn Statement on 5 December 2012 this was just a dress rehearsal for a further cut in the annual allowance to £40,000 and lifetime allowance to £1.25m, due in 2014. Whilst these reductions are not a Sipp specific issue, Sipps are commonly used by high net worth individuals, so Sipp clients could well be adversely impacted by these further reductions. The constant changes also sap confidence in pensions.
Spring, rather than heralding sunshine, saw some dark thunder clouds rolling in. The very things that make Sipps a stand out proposition - investment choice and flexibility - were coming under increased scrutiny as a means by which consumer detriment could occur.
News of investigations into the HD Sipp and its connection to the failed Arck LLP investment, followed by Serious Fraud Office investigations into Sustainable AgroEnergy - a biofuel investment promoted predominantly to Sipp investors - stirred up those concerns.
This issue reignited the debate over a Sipp operator’s duty to undertake due diligence on the investments that they are being requested to invest in by the member or their adviser. There is broad agreement that Sipp operators should carry out sufficient due diligence to ensure that the investment is a bona fide investment and acceptable to be held within the Sipp product, but as to suitability, that is for the client and their adviser to assess. Whille the level of and means by which due diligence is carried out by different Sipp operators may vary, as a whole, investment due diligence has been a significant development for some of the Sipp industry.
This brings us to the FSA. It was perhaps unsurprising that following certain investment failings, the FSA signalled it was considering a ban on the sale of unregulated collective investment schemes. This manifested itself in consultation paper CP12/19, issued in August 2012. It looks beyond Ucis by including investments that are close substitutes and aims to tighten up on their promotion to retail clients. Although Sipp operators do not generally get involved in promotion of investments, it seems likely that it will result in fewer requests from IFAs and clients to invest Sipp funds into such investments, which may impact specialist Sipp operators business.
In October the FSA issued its findings of last year’s Sipp thematic review. It prompted headlines such as “Sipp operators risk causing significant detriment to clients”, painting for many what may be construed as an exaggerated, grim picture of the entire sector, through extrapolating the findings from a few Sipp operators investigated. This was closely followed in November by CP12/29, which rather disappointingly announced that following years of engagement by industry bodies regarding Sipp disclosure, the FSA is to push ahead by effectively defining all Sipps as personal pensions and therefore require all Sipps to comply with the personal pension disclosure requirements. A crumb of comfort is that the onerous implementation has been put back from the end of 2012 to 6 April 2013.
This was followed by CP12/33 outlining new capital adequacy requirements for Sipp operators, which if implemented in full, could put in jeopardy the survival of a not insignificant number of smaller SIPP operators. Ironically and worryingly this could create customer detriment that the FSA seeks to prevent.
Is it all gloom and doom? No. Many Sipp clients use drawdown and during the year have been hit with up to 50 per cent reductions in income. Drawdown could do with a fundamental policy review but the government’s u-turn of reverting back to 120 per cent of GAD is a welcome short-term measure, although no time has been given for this to be implemented. Although not Sipp specific, let us not forget the significant simplification achieved by the Department for Work and Pensions by scrapping contracting out from 6 April 2012.
Finally, 2012 is reckoned to be the year in which the number of Sipps achieved recehes the one million mark, which in itself represents significant growth and a fantastic success story. It moves Sipps from the niche to the mainstream market and as such there has to be some acceptance of change to swim in the ocean rather than the pond.
Events of 2012 represent a challenge for Sipps, but their concept is sound and the industry is resourceful, such that it is hoped that future years may be described as wonderful years, or as the Queen might put it, “Anni Mirabiles”.
Robert Graves, is head of pensions technical services, at Rowanmoor Group
