Changing Sipp propositions and rising costs

This article is part of
Guide to Sipps

Changing Sipp propositions and rising costs

The Financial Conduct Authority's new capital adequacy rules on Sipps came into force on 1 September. 


According to Mike Morrison, head of platform technical for AJ Bell, “The rules have the aim of minimising poor outcomes, should a Sipp operator be unable to carry on trading.”

Under the rules the assets held by Sipp operators is divided into standard and non-standard assets, with the non-standard assets being those that cannot readily be realised within 30 days.

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As Mr Morrison comments: “The higher the proportion of non-standard assets, the greater the capital that is required to be held.”

However, these rules on capital come with additional administrative costs, which have not gone down well with many Sipp providers.

Greg Kingston, head of communications, product and insight for Suffolk Life, comments: “Regulation has steadily increased costs for Sipp operations over the past decade, making many providers unprofitable or simply unsustainable, and for those who have chosen not to sell, there has been little alternative other than to raise costs.”

But according to Rachael Healy, senior associate at law firm RPC: “The new formula was announced by the then Financial Services Authority (FSA) in November 2012.

“Therefore, Sipp providers have had time to make appropriate arrangements to ensure they have adequate capital in place.”

The FCA even wrote to all chief executives of Sipp providers in July 2014 to set out what was expected of them if they wanted to continue to operate in the self-invested market.

However, as a result of the stricter rules coming into force in September this year – as outlined in the FCA handbook – some operators have reported a rise in associated business costs and reporting requirements.

“Regulation undoubtedly adds to the cost base for providers”, says George Houston, senior technical and development manager for Mattioli Woods.

This has resulted in a few providers putting up the costs for some clients, while others have altered their propositions and restricted the type of non-standard asset.

Martin Tilley, director of technical services for Dentons Pension Management, comments: “Most of the Sipp proposition changes and cost increases have been led by a regulatory crackdown to ensure what should always have been best practice.”

This has also led to more adviser pressure on Sipp providers, says Stewart Davies, chief executive of Momentum Pensions. 

“Advisers are scrutinising Sipp providers more than ever before since the capital adequacy rules came in, and there is simply no room for anything other than complete openness and transparency.”

Fee hikes 

Elaine Turtle, director for DP pensions, comments: “The cost of compliance has continued to increase and eventually every business has to review its costs and see if fees have to increase. 

“Some Sipp providers have not increased fees for three to five years.”