Self-invested personal pension (Sipp) providers have had a good few years. Riding the wave of massive interest from investors, operators have popped up all over the place, providing a plethora of options for advisers to choose from. Our biggest ever survey shows 88 plans from 60 providers, more than half of the estimated 110 providers out there.
But regulatory scrutiny has increased. The FSA has stipulated that poor providers with bad management must pull up their socks and conduct better due diligence on their investments - although such vagaries make it hard to identify who is actually causing problems.
Its capital adequacy paper, however, will affect all providers. The regulator’s new calculation places far greater emphasis on ‘non-standard’ assets, the thinking being that – in the event of a wind-up of a Sipp operator – these assets would be more difficult to sell on or transfer.
Few Sipp providers will go unaffected if the current proposals go through. Chart 1 shows the percentage of plans surveyed that accept each non-standard asset type, ranging from 24 per cent allowing investment into off-plan hotel rooms to 66 per cent accommodating commercial property. Although some investments are clearly more niche than others, it is plain that many Sipp providers will feel the impact of an altered capital regime.
“If implemented as proposed, it is likely that some Sipp providers will be faced with the choice of changing their charging structure or business model, altering their range of permitted investments or perhaps looking at pulling out of the market,” says Billy Mackay, marketing director at AJ Bell. The scope of impact will depend heavily on the split of standard and non-standard assets, he adds.
But it would be wrong to say that Sipp providers allowing investments into riskier assets are in themselves inherently more risky; a whole range of factors come into play, including the proportion of esoteric assets and the level of due diligence performed. The whole point of a full Sipp is to provide access to a broad variety of investments; if certain options become unviable for the vast majority of firms, the industry may as well have a permitted investments list.
“[So-called] non-standard assets may need to be restricted in future or priced accordingly,” says Richard Bean, SSAS and Sipp business development consultant at AWD Chase de Vere. “True Sipps may become something of a rare commodity.”
At present, ‘full’ Sipps are most common, as shown in Table 1. This may of course change once the regulator gives its final judgement.
As well as detail on product scope and platform links, the Table shows which capital regime providers fall under. While some are beholden to other regulatory regimes, operators broadly must at present hold either six or 13 weeks’ capital. A total of 20 plans reported being under the six week regime – although many said they held an excess of the capital required – and a further 30 did not disclose their position.
The jump between six weeks’ expenditure and the proposed capital requirements will be huge for some providers and could lead to the widely predicted consolidation of the industry. Even in the past year, movements have begun: Alliance Trust sold its £3bn ‘full’ Sipp book to Curtis Banks in October, focusing instead on its platform offering, followed by Suffolk Life’s purchase of around 1,700 Sipps from Pointon York in November.