Sipps: Make or break

This article is part of
Sipps special report – October 2015

Sipps: Make or break

The biggest news in pensions over the past decade has undoubtedly been the freedoms that came into effect in April.

Previous surveys in the lead up to the change in legislation have not been able to look into how the changes have directly affected the market. But early indications suggest the self-invested personal pension (Sipp) has been relatively unharmed thus far.

The year ahead is set to be busy for Sipp providers with many changes coming into force. Last year, the FCA’s ‘Dear CEO’ letter to operators suggested most failed to undertake adequate due diligence on non-standard assets. Since then the PS14/12 paper – which unveiled a new capital framework for providers – also added new assets onto the standard asset list, including relatively illiquid areas such as UK commercial property, physical gold bullion as well as liquid National Savings & Investments products, and bank account deposits – although it should be noted there is no official FCA definition of what constitutes a ‘liquid’ asset.

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Alongside this, requirements mean providers will have to hold a minimum £20,000 in reserve by September 2016. See Box 1 for more details on how operators must calculate their capital adequacy.

While this goes on in the background, the pension freedoms have been capturing headlines and have been a main focus for the industry over the past year, and now we are starting to see the effects.

Claire Trott, director and head of pensions technical at Talbot & Muir, says the issues surrounding the pensions freedoms are quite significant, but most of the impact falls on the client. “Sipps have been operating these kinds of benefits for many years. Clients struggle with the taxation of benefits.

“Where they are looking to access those benefits all in one go, they will have to wait for the end of the tax year to have an adjustment or refund, or they will need to complete forms in order to get a refund of the overpaid tax sooner.”

Line of defence

One of the other issues is with regards to the second line of defence, where Ms Trott says clients “quite rightly” have to be informed of all the issues when taking benefits for the first time after April 2015, where an adviser does not facilitate the process. “This can mean a delay in the time it takes to access their cash and income,” she adds. “We have had little push back on this but for those with smaller pots and what they deem to be simpler products, it can feel like providers are trying to stop them accessing their money.”

The first since the pension freedoms, this year’s survey covers 67 plans across 50 providers. This is down slightly from April’s survey, which covered 71 plans over 51 providers.

There are a few notable absences in this year’s survey, such as Avalon, which is no longer taking any new business, Tilney BestInvest, which did not have the time to complete the survey and Prudential, which did not return the survey in time. Money Management sends out the surveys with as much time as possible and hopes to see each company return next year for April’s survey.