As a result, a number of Sipp providers have revised their assets acceptance process and in several cases have stopped accepting certain asset classes. This may affect existing clients who may have chosen their providers on the basis of the Sipp meeting their investment flexibility requirements.
Service standards might also vary, and may be affected by an influx of business where internal structure and staff are not geared up in advance.
Lastly, can a Sipp firm’s credentials be traced back historically with reference to the length of time it has been in the industry, the experience, expertise and continuity of its staff? One would expect a stable and long-standing firm whose sole or main business is Sipps to be a safe bet.
Careful selection of a Sipp provider might avoid the cost and inconvenience involved in the event that a Sipp no longer fulfils the requirement of the member.
Experience has shown that this is not an uncommon event, and can arise due to service levels no longer meeting expectations, Sipp propositions changing (such as the revision of acceptable asset classes) or indeed a Sipp provider being acquired or merging with another. An acknowledged feature of the CP12/33 was the probability that some Sipp providers would leave the market, and indeed we have already seen the sales of some Sipp providers.
Sipp providers will also be suffering the additional costs of amending systems to accommodate the new pension freedoms, which may also have had an impact, as may the exodus of clients wishing to use those freedoms.
The tapering of annual allowance for the higher earners may also affect new business and new contributions for the higher end Sipp market. If we also take account of the Green Paper which proposes a reversal to the current exempt exempt tax structure, a limitation on annual contributions as low as £16,000 a year, and most recently a suggestion of a single-tier rate at which tax relief might, if it survives, be granted on contributions, the future for some Sipp providers might be in question.
While these factors might be weathered by the financially stronger Sipp providers, others might struggle. Further consolidation in the market looks to be certain, and the closer to the capital adequacy benchmarks we get the more likely this will be.
Martin Tilley is director of technical services of Dentons Pension Management
Key Points
From this month, new capital adequacy requirements for Sipps are beginning to have a tangible impact on affected firms.
The value of assets is to be determined by taking an average of assets under administration within the Sipp providers book over the preceding four quarters.
Given that things change, a constant monitoring of the market might be necessary.
