Self-invested personal pension providers are expected to consolidate further in the run up to and following the changes to capital adequacy requirements for providers coming in on 1 September.
First announced by then Financial Services Authority in November 2012, Sipp operators have been required to increase the capital they hold in reserve.
The new formula has resulted in a significant increase in capital requirements for Sipp operators whose assets contained the greatest proportions of non-standard assets.
In January this year, the Financial Conduct Authority revealed it is ready to wind up self-invested personal pension providers who fail to meet capital requirement expectations.
Since then the Sipp market has seen a flurry of M&A activity.
Earlier this month, Hornbuckle parent Embark Group bought fellow self-invested personal pension provider Rowanmoor Group.
Also this month, Talbot & Muir bought the Sipp and Ssas administration business of Attivo Group for an undisclosed amount.
Now, a host of providers have said they expect further consolidations in the industry both in the run up to the new capital adequacy requirements coming in to force and following them, as some providers will not have met their ideal deadlines for increasing their cash levels.
Brian Talbot, founder and director at Talbot & Muir said of the Attivo acquisition’s timing: “That bit of business became available now. [Attivo] had made the decision to move out of non-core and it fits with out timing. It fits in with our plans for organic growth and acquisition.
He added there could be more acquisitions before the capital adequacy rules come into place and shortly afterwards, but was not aware of any “firesale”.
He said: “We are acquisitive for the right book of business. Our experience is where business such as Attivo and Oval want to sell off non-core business.
“We’ve seen bigger players get bigger. Some of the books of business are somewhat distressed, due to high levels of non-standard investment, one or two businesses have admin and resource problems and against the backdrop of capital adequacy bill rising at the start of September.”
Martin Tilley, director of technical services at Dentons said of the firm: “It is unlikely that any announcement on acquisitions will be made before 1 September but we are actively in discussions with a couple of firms about acquisitions.”
Speaking more generally about the market, he said a few Sipp providers are trying to get in before 1 September.
“With Attivo, Sipps are not core to what they do but because the requirements of being a Sipp owner are more onerous, some are derisking their business - they’ve now decided this is the trigger point to disclose that part of their business.
“We have seen several firms waiting to do that but some have misinterpreted the length of time it takes - they have mis-estimated and therefore not left enough time to do it before 1 September.”
Fellow Sipp Curtis Banks has a history of growing through acquisition. Rupert Curtis, chief executive, said his firm’s acquisition strategy is designed to position it as the leading consolidator in the Sipp market. L
“Larger businesses looking to sell, including insurance companies, know that we have proven capability to deliver acquisitions of real scale with good customer outcomes and no potential conflicts on other aspects of the customer relationship.
“That’s unique right now in the market, and some of our acquisitions – notably that of Suffolk Life – have enhanced this capability. We used Suffolk Life for the recent acquisition of the EPM portfolio, so that’s a good example. While there is potential for good sized insured and legacy book acquisitions, there are fewer bespoke books of significant size or quality remaining in the market.”
Greg Kingston, head of communications at Suffolk Life said: “September 2016 (when the new capital rules come into force) won’t be a specific date that drives the sale of some Sipp books, but it is nevertheless an important one.
“There will be Sipp businesses who are sufficiently capitalised come September but who still wish to sell, so I expect we’ll see deals continue both before and after that date. There’s also the question of how much acquisitive capacity exists in the market.
“Some of it is proven, such as our acquisition of the EPM portfolio just a few weeks after joining the Curtis Banks group, but much of it is not. Sellers need to have confidence that a buyer can actually complete the transaction.”
Scott Gallacher, director at Leicester-based Rowley Turton said that these market patterns are expected due to the fact that Sipps are becoming a more mainstream product.
The FCA are putting them under scrutiny and capital adequacy is a part of that. To some extent there’s a concern about reduced competition because there will be less players in the market but I still think there will be plenty of providers once we’ve gone through this exercise.
“It’s important from a client perspective that the capital adequacy is strong so the FCA have done the right thing here.”
ruth.gillbe@ft.com
