Next year will see self-invested personal pension provider consolidation and a pre-Budget rush of clients making contributions, according to Xafinity.
Jeff Steedman, head of Sipp and Ssas business development at the firm, predicted that changes to capital adequacy rules next September could lead to some businesses being swallowed by others.
“This change is hugely significant and will definitely give some owners of Sipp businesses a very large headache by way of the complexity of calculation and the capital holding required, which for some could be upwards of millions.”
He added that the Financial Conduct Authority has already predicted some fall out, with “weaker providers potentially going to the wall”.
Those wishing to sell their business before new capital rules arrive will seek a buyer who can be trusted to look after clients, and of course provide them with a good price, but Mr Steedman pointed out that those looking to acquire will now require clear understanding of the increase in their capital position post-purchase, alongside the usual plethora of due diligence.
“A Sipp business carrying a 2016 capital requirement of, say, £500,000 must come to terms with the negative impact on the value of their business.”
Martin Tilley, director of technical services at Dentons Pension Management, told FTAdviser that capital adequacy has become a key factor in considering consolidation and the impact of acquiring a book of clients must be taken into account.
“Strangely, acquiring a book of clients holding standard assets only could reduce a Sipp provider’s capital surcharge element of the capital adequacy calculation,” he noted.
Barnett Waddingham’s head of Sipp business development Andy Leggett commented that any provider intending to sell out before changes hits are leaving it awfully late.
“If they are intending to sell out solely because of being unable to raise the funds, they may be able to achieve this but would place themselves in a poor negotiating position.
“If they have other issues besides funding, they may not find a buyer in that time frame and we could then find Sipp operators in post September 2016 cap ad regime with insufficient capital, no access to funds and no buyer.”
Elsewhere, Mr Steedman suggested that there will be a rush to pay large one-off contributions into Sipps, Ssas and other pension products ahead of the widely-predicted reduction in tax relief for high earners at the next Budget on 16 March.
“Regardless of how early advisers discuss new contributions with clients and company accountants, there will inevitably be a last minute rush to open up new Sipps and Ssas’ ‘overnight’,” he commented.
The chancellor may also wish to review of the ever decreasing Lifetime Allowance, which Mr Steedman deemed “remarkably complicated”.
“Given the annual allowance has remained at £40,000 for a few years now, will he loosen the purse strings at the top end to encourage people to save for retirement and not be taxed to death when claiming their hard earned pensions?”
John Fox, director at Liberty Sipp, agreed that a review of the Lifetime Allowance is long overdue.
“The reduced annual allowance has put a serious dampener on people, especially new savers, getting anywhere near the lifetime allowance. From a purely selfish point of view, I would be asking Santa or George Osborne to scrap the LTA simply to reduce the red-tape and administrative burden that it brings.”
Suffolk Life’s head of communications and insight Greg Kingston said that there’s no incentive for the chancellor to remove lifetime allowance, despite vocal lobbying from the industry.
“The opposition would position it as another tax break for wealthy ‘pension millionaires’, so there’s neither fiscal nor political benefit.”
peter.walker@ft.com
