Table 3 looks at one of the more topical areas of the Sipp industry – capital adequacy. As previously mentioned, in August the FCA unveiled its intentions after years of waiting. It should be noted, however, that this year’s Sipp survey has asked for figures to 1 August 2014 and the changes do not come into action until September 2016, so there is still a long way to go for some providers. The question we asked was purely to find out that, should the rules be currently applicable, what percentage of business would be covered.
Jeff Steedman, head of Sipp and Ssas business development at Xafinity, says, “Capital adequacy will have a significant impact on some providers as clearly those with large volumes of non-standard investments may be hit hard.”
Although contentious for some, Claire Trott, head of technical support at Talbot and Muir, says the changes to the requirements for Sipp operators are “positive for the industry”, making it stronger and it should also increase the levels of trust from consumers. “There have been a significant number of negative stories about the pensions market recently which will deter savers when pensions are becoming an increasingly flexible way to save for retirement,” she adds. “The FCA is clearly taking seriously its responsibilities to protect consumers and the increases seen in capital adequacy requirements for Sipp operators will ensure that those firms willing to commit to the long term can be trusted to fulfil their promises to advisers and their clients.”
Last year, 28 providers failed to respond to the question, but this year, just 24 did not respond or said it was not applicable – for instance insurance companies or platforms. Of all the providers who responded to the question, just two providers had less than 100 per cent in reserve – Westerby and Rowanmoor. Westerby also has the highest percentage of non-standard assets – 60 per cent in its Private Pension Full Sipp – which is closely followed by City Trustees’ Full Sipp.
Every provider has different ideas of due diligence when it comes to the non-standard investments that can be held in Sipps. Robert Graves, head of pensions technical services at Rowanmoor, says there are two key aspects to Sipp investments: Acceptability and suitability. “As a Sipp operator and trustee, we undertake extensive due diligence on investments we are asked to invest Sipp funds into,” he says. “The suitability of a particular investment for a client is very much the area of expertise of the regulated financial intermediary, which we require to be involved in all our Sipps.
