Why Sipp consolidation will continue

This article is part of
Guide to Sipps

Why Sipp consolidation will continue

“Given the history of regulatory activity, consolidation of the Sipp market was inevitable”, says Martin Tilley, director of technical services for Dentons Pension Management.

“The regulator’s successive thematic reviews, which have made it clear providers operating in the Sipp market need to have robust asset acceptance, as well as the required increase in capital adequacy resources, has had a dual effect of squeezing many Sipp providers, who could not continue as a viable business.”

He comments that although consolidation recently may appear to be slow, the number of Sipp operators has reduced from its high approximately three years ago by about 50 per cent.

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Indeed, “At least 10 firms have been acquired by other providers in the past 12 months”, comments Neil MacGillivray, head of technical support for James Hay. “There is little sign of this abating, with many firms admitting they are looking for further acquisition.”

One of these is Momentum Pensions, whose chief executive Stewart Davies says: “We expect consolidation to accelerate and, likewise, we intend to participate in this consolidation, which we regard as inevitable.”

This is backed up by the Financial Conduct Authority’s own figures, which show a gradual decline in the number of Sipp providers in the UK, since the sector's heyday after the 2006 pensions simplification regime came into force.

 The following graph, compiled by the Rock Consultancy, shows the decline in the number of providers, based on FCA data, to 75 from 99 over the past few months.

Examples of recent purchases include London & Colonial’s acquisition by STM in September this year.

Chris Jones, founder of the Rock Consultancy, says: “It has been long predicted but activity has ramped up this year and will continue at a steady rate, I believe.

Yet he does not anticipate a tsunami of M&A activity: “I don’t see a huge wave, because these things take time.” 

However, there are still many Sipp products available - the number of such products both on and off platform has burgeoned in recent years, data from the FCA/Rock Consultancy has shown.

This means there is still plenty of choice for clients and still plenty of providers, despite the predicted consolidation.

And, according to Greg Kingston, the rate of consolidation is “sensible”. He explains: “The pace of consolidation is limited by two factors: achievable capacity in the market and available quality in the market.

“There are only a few willing consolidators who can take on any type of size of acquisition but the biggest hindrance appears to be the lack of quality available.”

He says a number of Sipp businesses are rumoured to have been up for sale for months, if not years, but they’re unable to attract a buyer. 

Mr Jones comments: “there are significant regulatory and legal hurdles, alongside commercial issues. Many firms looking to sell out are holding toxic investments or facing latent tax liabilities which turn potential suitors off.