Self-invested personal pension providers have warned of the dangers of including peer-to-peer lending products within their wrappers, responding to initial distribution deals being signed in recent months.
P2P lender Ratesetter’s senior commercial manager Ceri Williams told FTAdviser that in just the last three weeks around £350,000 worth of Sipp money, across several trustees, has been lent via the provider, although all of this has come through the non-advised route so far.
He admitted that trustees overseeing Sipps have also taken time to warm to P2P products, although Ratesetter signed distribution agreements with London and Colonial and European Pensions Management in the spring, enabling customers to lend within their pension tax wrapper.
Martin Tilley, director of technical services at Dentons Pension Management, argued that P2P is an asset class in its infancy and that the providers of these vehicles are under a misapprehension.
He said: “It is not that Sipp providers are not keen on this product because it is a non-standard asset, it is the fact that there is no filtering process to ensure that monies invested by a Sipp cannot be lent back to a party connected; which would trigger an immediate tax charge.
“Of all of the P2P lenders we’ve spoken to, none have any process in place to identify potential connected party lending nor do some recognise this as an issue.
“One unnamed firm told us that if they realised it had happened they’d immediately take steps to rectify it,” he continued, adding that it would be too late then as the tax charge has already been incurred.
The Financial Conduct Authority’s thematic review of Sipp providers last year mandated they must have a robust and evidenced method of assessing all investment types, so Mr Tilley stated that those which have accepted P2P to date have mitigated the potential tax charges in some way.
“All the while the asset is unregulated and holds no protections, so of course IFA’s will be extremely reluctant to advise upon it. The due diligence they would have to do on the P2P provider and its process for selection of parties to whom they will lend, will be enormous.”
He went on to warn that P2P lending looks good to the uneducated and ripe for mis-selling, with a “potential disaster” in the making for all but sophisticated investors.
Andy Leggett, head of Sipp business development at Barnett Waddingham, pointed out that following HM Revenue and Customs guidance, lending money to even an unconnected party could create tax charges if that loan is used to acquire residential property.
“As such, we generally cannot agree that P2P lending propositions work with Sipps unless at least one of two things happen. P2P propositions, and in particular their controls, would have to change, otherwise, HMRC pension rules would have to change.
“If the above concerns could be eliminated, we would be just as willing to set up a Sipp for P2P lending as for any other investment – providing other requirements were satisfactorily dealt with, which would include ability to obtain investment valuations and control over repatriation of funds when the investment finishes,” he added.
John Moret, principal of consultancy MoretoSipps, commented that there are limited situations where P2P might be an appropriate Sipp investment, but added that advisers cannot simply discount it because it’s a non-standard investment.
“However, in the light of recent ombudsman and FCA rulings, reluctance on the part of advisers – and many Sipp providers – to countenance such investments is understandable.
“If the new P2P Isa regime goes ahead then it is hard to see why the non-standard investment categorisation for Sipps should continue to apply. However the taxable property rules which potentially trigger the tax liability are of course the responsibility of HMRC and it wouldn’t be the first time that there has been inconsistency in the treatment of investments.”
Anna Hopkinson, group marketing manager at Rowanmoor, said the due diligence required on P2P investments is complex, with a major issue being how to ascertain the final destination of the investment and whether or not it is bone fide. “Currently, we have not approved any P2P lending products and we are certainly not seeing much interest from advisers for these.”
Hyman Wolanski, managing director at Sippchoice, agreed that while they do allow loans to unconnected third parties which meet due diligence requirements, his firm does not allow P2P lending in Sipps.
peter.walker@ft.com
