Industry split on non-standard assets in Sipps

Industry split on non-standard assets in Sipps

The industry has split opinions on whether non-standard assets should be allowed in self-invested personal pensions, in the wake of Octopus Investments partnering with two providers to offer peer-to-peer investments.

Octopus Investments today (October 15) announced that its peer-to-peer investment platform Octopus Choice is accessible within a Sipp wrapper with Hartley Pensions and Morgan Lloyd.

The investment firm said it had seen increased demand from financial advisers and direct investors who wanted access to P2P lending within a tax efficient pension wrapper.

Charlie Taylor, head of Octopus Choice, believes P2P investments can be an attractive option as long as investors are aware of the risks.

Mr Taylor said: “Property backed peer-to-peer lending is an alternative asset class that aims to offer lower volatility than equity markets and targets regular income. Octopus Choice, for example, aims for the equivalent of 4 per cent per annum. 

“These qualities can make it an attractive option for certain people, comfortable with the risks of the asset class, who want to diversify their Sipp portfolio.”

But some in the industry had doubts about encouraging people to hold non-standard assets in a Sipp.

P2P is a risky choice because it is not covered by the Financial Services Compensation Scheme and comes with capital and liquidity risk.

Charlie Musson, head of public relations at AJ Bell, said: “As with any non-standard asset it is important that Sipp investors understand the level of risk they are taking for the potential return they might receive and crucially what protection they will have if it goes wrong. 

“The returns on offer from P2P loans are sometimes compared to cash, yet they carry significantly more risk and are not covered by the FSCS so it is vital that customers are aware of this when considering these investments.”

AJ Bell does not allow P2P investments via its Sipp.

Martin Tilley, pensions director at Hurley Pensions, said providers accepting this type of investment will have to ensure proper due diligence is carried out.

Mr Tilley said: “It is a non-standard investment and Sipps will be reluctant to take these assets on board as the burden for due diligence appears to have landed squarely on them. Thus they can’t necessarily rely on others’ due diligence. 

“I suspect it will be a limited market place.”

Sipp firms have increasingly been pulled up over their perceived lack of due diligence on non-standard investments since 2014.

Berkeley Burke for instance was embroiled in a Financial Ombudsman Service decision from 2014 in which it was ordered to compensate a client after it failed to carry out adviser-style due diligence on his investment.

The case went on for years before it was dropped by the administrators of the now defunct Sipp earlier this month.

Meanwhile, others in the industry have called for non-standard investments in Sipps to be banned altogether.

The Transparency Task Force for instance said that for the pensions sector to regain the trust of its consumers, it must look at banning unregulated investments in Sipps.