Pensions  

Fears Sipp providers will fail capital adequacy rules

Fears Sipp providers will fail capital adequacy rules

Advisers are concerned Sipp providers managing their clients’ pensions will not be able to meet September’s capital adequacy requirements, research from Momentum Pensions has suggested.

An online poll of 101 financial advisers carried out five months before new capital adequacy rules basing solvency requirements on the proportion of standard and non-standard assets held by Sipp providers come into effect, suggested 45 per cent are concerned about providers having the required cash reserves.

They are also concerned about the implementation of the rules - 63 per cent of financial advisers polled want more clarity on non-standard Sipp investment regulations from HM Revenue & Customs and the Financial Conduct Authority.

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Underlying the research was the importance of Sipps as a planning tool for non-standard pension investments.

A third of advisers polled cited this as important, and two out of five advisers said the flexibility to take on non-standard investments was important to either them or their clients.

Under the capital adequacy rules, commercial property held in a Sipp is to be classed as a ‘standard asset’.

Previously, the regulator had classed commercial property as a ‘non-standard’ asset.

Momentum Pensions’ research further suggested 36 per cent of advisers polled want more clarity on specific property transfer rules.

Stewart Davies, chief executive of Momentum Pensions, said: “The fact so many advisers are worried about the ability of their Sipp provider to meet September’s capital adequacy requirements is concerning.

“Not only will this impact their confidence in their particular adviser, it will potentially cast a shadow over the entire industry and highlights the need for Sipp providers to work closely with advisers to ensure they have the knowledge and tools available to provide clients with detailed, legislative-secure advice.”

Earlier this month Sipp provider Dentons reported a surge in new business, much of it coming from rivals, as IFAs “gravitate towards the quality providers”.

Sales director David Fox told FTAdviser more than 40 per cent of its new business came from pension savers with existing Sipps moving from other providers in a flight to safety.

Sipps have come under increased criticism in the last 18 months, following high profile problems around some providers’ decisions to allow esoteric and unregulated investments, which have then failed.

Last month, the Financial Services Compensation Scheme revealed it was reviewing Sipp providers’ liability for investor losses, in a move that could have massive ramifications for the market, by potentially putting providers on the hook for hundreds of millions of pounds.

Up until now, financial and reputational liability for ensuring clients’ investments are suitable has fallen almost exclusively to their financial adviser, with Sipp providers always denying responsibility for suitability.

Mr Fox said Dentons - which does allow non-mainstream assets if they pass what it has said are strict due diligence criteria - is in a strong position compared to rivals and is attracting business from them.