PensionsJul 29 2015

Sipps warn of investor ‘interim’ charges due to FSCS levy

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Sipps warn of investor ‘interim’ charges due to FSCS levy

Self invested pension providers have warned that they may be forced to charge investors interim and one-off charges, as they did four years ago, due to “substantial unforeseen regulatory costs”, in particular the hike in the Financial Services Compensation Scheme levy.

Suffolk Life’s head of communications and insight Greg Kingston suggested that further pressure on Sipp operators could result in increased fees for investors, with total regulatory costs rising by an additional 75 per cent this year, in part due to the increased levy.

The firm noted that the levy could be as much as 150 per cent of last year’s levels for some providers, adding that any longer term increases to FSCS protection levels would drive regulatory costs even higher.

The FSCS stated in its recently published annual report that it intends to review protection limits with the regulators as part of their forthcoming review of protection and funding.

Earlier in July, the FSCS chief executive Mark Neale FSCS warned that the numbers and costs of complex Sipps-related decisions are likely to rise steeply again during 2015 to 2016, after already rising from £71.3m to £183.1m year-on-year.

Mr Kingston pointed out that FSCS costs for Sipp operators have not come under scrutiny since 2011, when the then record interim levy drove some to consider interim and immediate one off charges to their investors.

“With Sipp operators already under financial pressure to meet the regulator’s new capital requirements ahead of September 2016, some of them may be unable to rule out taking similar action should the size of the levy and FSCS protection limits increase.”

Martin Tilley, director of technical services at Dentons, agreed that additional levies of up to £100 per client were reported back in 2011, although how many of these were actually enforced is questionable.

“Regulatory burden has increased as a result of the third FCA thematic review and whilst the majority of Sipp providers have already made provision for the capital requirements that come into effect in 2016, substantial unforeseen regulatory costs could impact on business plans.

“While we have no plans currently to increase fees, some changes across the market cannot be ruled out,” he continued, adding that the FSCS levy is a “blunt tool” and impacts regulated firms without discrimination in that it does not take into account the likelihood of claims which could be based upon the number of unregulated/non standard investments.

John Moret, principal of consultancy MoretoSipps, told FTAdviser that one of the problems with the levy on providers is that it is not uniform.

“Some providers will be subject to the PRA sub-scheme for life and pensions provision, while others will come under the FCA investment provision sub-class and some might even be caught under the FCA sub-classes of investment or life and pensions intermediation,” he explained, adding that each has its own threshold limit with complicated rules for sharing any excess if the threshold is exceeded.

“Back in 2011 when Sipp providers were subject to an interim levy the impact on individual providers varied enormously with some providers realising that they had classified themselves incorrectly.”

Andy Leggett, head of Sipp business development at Barnett Waddingham, complained that the FSCS has lost its way and urgently needs to reassess its purpose, aims and its funding.

“Levies are going through the roof and it is the ‘good guys’ who are paying for the misdeeds of rogues. Increasing the compensation limits without addressing these serious underlying problems will magnify the issues and, ironically, leave consumers worse off.”

peter.walker@ft.com