Sipps predict Brexit could put pressure on providers

Sipps predict Brexit could put pressure on providers

Uncertainty caused by Britain’s vote to leave the European Union could separate out those self-invested personal pension providers which have robust business models from those that are weaker, according to some Sipp directors.

AJ Bell, Liberty Sipp and Dentons said indirect impacts of the Brexit vote - for example if assets under management fell sharply - could see some Sipp providers struggle.

Speaking to FTAdviser, Billy Mackay, marketing director at AJ Bell, said he did not expect a direct impact on Sipp capital adequacy.

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A fall in assets under management would reduce capital adequacy requirements rather than increase them and would only occur if there was a dramatic and sustained fall in global markets.

But Mr Mackay said even if there is no direct impact on the amount of capital Sipp providers need to hold as a result of the Brexit vote, “it is going to increase the pressure on Sipp operators with weak business models”.

He added volatility in the wake of the decision is unlikely to be good news for firms with limited profitability and poor capital positions who may not be able to cope with further commercial pressure.

Mr Mackay said: “Advisers will be looking for Sipp operators with commercially strong business models and a solid capital position that will be able to support them and their clients over the long term.”

John Fox, director of Liberty Sipp, said the immediate impact of the Brexit result on Sipp operators has been the same as it is for all pension providers - a hit to the underlying assets.

He said it was worth bearing in mind two things: pensions are long-term savings products specifically designed to ride out such short-term volatility, and Sipps in particular allow clients to have highly diversified portfolios.

He said: “Sipps allow clients to hold a much wider ranger of asset classes than just shares. Clients with assets like gold and commercial property in their Sipps will have been well hedged against the post-Brexit fall in the stock market.

“As for the new capital adequacy rules, years of preparation and extensive stress-testing mean all good Sipp providers will have a substantial cap ad cushion. That is certainly the case for Liberty Sipp, and we are ready and able to take September’s new rules in our stride.”

Martin Tilley, director of technical services at Dentons Pensions Management, said he doubted the referendum result would have had a major impact on Sipp capital adequacy.

He said: “The formula for calculation is asset value based and in view of the drop off in markets it may have even marginally reduced cap ad levels but these movements were not radically out of line with market volatility in any event.

“In terms of assets held for capital adequacy, again I doubt if providers assets held to meet capital adequacy will have been radically hit.

“Ours certainly have not been and our focus is more towards to potential changes in economic and tax drivers that may impact the market over he next three to five years.”