Sipp capital adequacy - one year on

  • To ascertain the impact of the FCA's capital adequacy rules on Sipp providers.
  • To understand the scale of any consolidation of products or providers.
  • To learn what sort of product changes have been noted since the FCA's Sipp rules.
Sipp capital adequacy - one year on

One year on, what impact has the regulator's capital adequacy legislation had on the number of providers and products in the self-invested personal pensions market?

Moreover, what impact has the legislation had on acceptance of non-standard investments within self-invested personal pension (Sipp) products?

Also, what sort of key considerations should advisers have when carrying out due diligence on Sipp providers and client suitability of products in respect of both the Sipp proposition and of the providers' ownership?

These are significant issues to deal with. On a personal note, I have been working at Defaqto for nearly 12 years and I am fairly sure that for most of that time the word has been that Sipp consolidation is coming and that the number of providers, and therefore Sipp products, in the market is unsustainable.

The reason it always comes up is because it has never really happened. When the FCA published its Policy Statement 14/12 (PS 14/12) in August 2014 confirming the new capital adequacy rules that Sipp providers must meet from 1 September 2016, it was widely seen by many as the catalyst to finally kick-start the consolidation process.

All change?

But what does this new, leaner Sipp market look like? Well, the answer is, not much different from last year or the year before that.

In fact, Defaqto Engage data shows that as at 1 September 2017 the number of providers in the market was 85 while on the same date in 2015 and 2016 it was 82, suggesting that actually the market has grown not contracted. 

At the same time, the data shows assets under administration within Sipps has grown by a third from 1 September 2016 to 1 September 2017 spread across all the Sipp products on which Defaqto collects data.

This shows the continued popularity and importance advisers are placing on pension products, and Sipps in particular, for retirement planning but also now inheritance planning as a result of the new rules on death benefits for beneficiaries in light of pension freedoms. 

Although the industry uses the term ‘providers’ to describe Sipp producers, but it may be more accurate to refer to them as brands. There has been some consolidation in the market and though individual brands remain, there may be one larger parent that owns multiple brands. 

Let’s go back to 1 September 2015, 12 months before the new regulations (as it was around this time that a couple of headline takeovers took place) and look at the providers in the market then and match them each up to a parent.

For example, in 2015 Cofunds and Suffolk Life were both owned by Legal and General, which had its own Sipp, but all three were listed as three different brands though there was a single provider.

Fast forward to 2017, Legal and General still has a Sipp. The Cofunds platform is now owned by Aegon and Suffolk Life by Curtis Banks. But both of these new owners were already in the market in 2015 with their own Sipp products.

  1. What does Mr Duthie say is more appropriate a term for Sipp providers?

  2. What does this new leaner, meaner Sipp market look like, according to Mr Duthie?

  3. Mr Duthie says evidence points to a lack of wholesale contraction in the Sipp market, true or false?

  4. What could be a drawback in terms of mergers, according to Mr Duthie?

  5. What is fuelling speculation that more consolidation could be around the corner, according to Mr Duthie?

  6. What does Mr Duthie say Sipps offering non-standard investments will likely be?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To ascertain the impact of the FCA's capital adequacy rules on Sipp providers.
  • To understand the scale of any consolidation of products or providers.
  • To learn what sort of product changes have been noted since the FCA's Sipp rules.

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