Just because you can, doesn’t mean you should
The natural instinct of the traditional, independent Sipp providers has historically been to deliver whatever changes that legislation permits. But the signs are different now. The Sipp industry is under unrelenting regulatory and financial pressure. Another ‘Dear CEO’ letter followed the third thematic review of Sipp operators – the outcome being that many Sipp providers have now ceased accepting non-standard assets or have placed other restrictions on the investments they are prepared to continue to accept. Two counts of enforcement action were also mentioned.
The regulator also published PS14/12, finally clarifying the new capital requirements for Sipp operators. Despite easing the rules from the original proposal the majority of Sipp operators will have to ask their shareholders for many times more capital in order to remain in business, and to do so by September 2016. Some providers are not sufficiently capitalised under the current regime, demonstrating aptly the financial pressure at play. And all this comes amid market conditions of falling sales among independent Sipp providers, as the business supplied by unregulated investments is cut off and platform providers take a greater share of the collectives market.
Despite the potential opportunity offered by the 2014 Budget it is amidst this turmoil that some Sipp providers may now choose not to implement all the available options. Based on current investor behaviour only a small minority are likely to continue to contribute to their Sipp once they start to draw income, and the demand for UFPLS has not yet been proven beyond a small niche.
Challenging times for advisers and investors
The challenge of finding a Sipp provider who can meet specific needs, both now and in the future, and choosing the best one from that shortlist has never been greater for advisers and investors alike. The Sipp provider selected last year may no longer offer the same investment options, and there is no certainty either that the new pension rules will be implemented next April. Squeezed by the platforms, the niche market that many independent providers rely upon is getting smaller and smaller. By failing to keep up with the possibilities offered from April 2015, that market will shrink even further. Now that the dust has settled following the third thematic review it is no surprise that the pace of consolidation of Sipp operators has increased once again.
Advisers will want to know more than simply whether a provider will offer a particular service. As the new drawdown options become more accepted and widely used, they will increasingly expect enhanced ways of using them. Providers will need to invest to deliver wider drawdown functionality online, both for advisers and investors alike. Consumer expectations will drive this demand, as they get to grips with the new accessibility of pensions and expect to be able to access them in the same way they can move money online from their bank account or Isa.
