Since we took over regulation of the Sipp market in 2007 we have had some concerns about the capital adequacy of those operating in the market.
We have seen a number of firms go out of business, which has put consumers’ pension savings at risk. The results of our thematic work have also given us cause for concern. For example, we found that some Sipp operators are failing to apply the correct prudential rules to their business.
One of our objectives is to secure an appropriate degree of protection for consumers which, in this sector, means ensuring their savings are as safe as possible.
This is why we decided that new capital requirements were needed. We need to be sure that Sipp operators can be wound-down in an orderly way.
Our starting point was trying to prevent, as much as possible, firms exiting the market in a disorderly way; this will most likely leave consumers without a pension administrator or facing having to fund the transfer of their assets to another administrator directly, through no fault of their own. This was the challenge facing us. The new rules will help to avoid this and ensure that firms can afford to exit the market should they need to.
Getting industry to provide feedback on our proposals is vital – it ensures our final proposals are balanced and deliverable while helping us achieve our objectives.
The feedback on this consultation paper was varied and there were some strong opinions and genuine concerns about implementation. When this happens, it’s right that we should reconsider our proposals. We have listened to the concerns of the Sipp community and found a balance that is proportionate to Sipp operators, consistent with our competition duty, but better protects consumers.
For example we have chosen to smooth the impact on smaller firms, as many of them would struggle to meet the requirements consulted on. This could cause an adverse impact on competition within the Sipp market which is not in the interest of consumers.
We had also previously suggested that UK commercial property should be treated as a non-standard asset class. But both feedback to the consultation and our thematic work helped us understand that UK commercial property can normally be transferred relatively easily provided there is a purchasing party prepared to accept the asset. We have also agreed to add a number of other assets types including gold bullion and bank account deposits to the standard asset list.
However, where an operator administers UK commercial property which is not capable of being transferred to another provider within 30 days, it should treat the asset as non-standard. We feel that this is an important distinction.
We understand that the new regime means some big changes will need to be made, but it is one that will ultimately help protect savers and create a more robust Sipp market. Sipp operators now have a two-year window to implement these changes to allow those who need to raise the additional capital the time they need.
We will, of course, monitor the market as the framework becomes embedded and consider how it improves the standards in the market.
These changes, along with the other work we are undertaking in the pension sector are aimed raising standards and improving outcomes – both for the consumer and the firm.
Mikael Down is head of department in the FCA’s policy, risk and research division