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FSA challenged over Sipp commercial property ‘standard assets’ exclusion

FSA Front Door 480

Sipp operators plan to challenge the FSA’s decision to exclude commercial property from its list of standard investments for capital adequacy purposes.

Earlier today, the regulator proposed increasing the minimum amount of capital a Sipp operator must hold from £5,000 to £20,000, with a surcharge for providers holding “non-standard” asset types.

The surcharge for non-standard assets will reflect the additional costs of transferring these assets. The FSA says this is necessary because it takes longer to transfer a scheme containing non-standard asset types.

Non-standard assets will be defined by reference to a list of standard assets. Commercial property does not feature on the FSA’s list.

MoretoSipps principal John Moret says: “Sipps with exposure to commercial property are going to be hit by this because that is outside the FSA’s definition of a standard asset.

“That is extraordinary given that about £10bn of Sipp assets are held in commercial property. I think the industry will push back on that.”

Dentons director of technical services Martin Tilley says: “We were very surprised to see commercial property wasn’t on the list of standard investments and that is something we will look to challenge.

“We have a fair proportion of commercial property on our book which we have carried out thorough due diligence on. If the FSA does not change its stance this would have a larger impact on us than we previously expected.”

A J Bell marketing director Billy Mackay says: “The FSA are concerned about the time it will take to realise or sell underlying Sipp investments, and commercial property could potentially take a while to deal with.

“But it is a long established asset class with no history of problems. We think commercial property should not be treated as an abnormal asset class and we will be making this point to the regulator.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. We can protest all we like, the FSA will no doubt listen sympathetically to reasoned arguement for 6 months or so and then conclude it was right all along.

  2. The £20,000 minimum figure is awfully misleading. Martin Tilley is quite right to be concerned.

    Dentons have a readily available Defacto report on their website that shows they had £1.2bn assets under admin, and about 25% of their SIPPs had commercial property.

    Using the proposed formula, even assuming they had NO OTHER ‘non standard’ assets in their SIPP book, they would need capital adequacy of £1.55 million (which is a bit more than £20k…).

    Hornbuckles claim on their website to have over £4bn under management. If (and this is rather conservative) 25% of their SIPPs have commercial properties, or other non-standard assets, their CapAd would be over £2.8mil. If it is 50%, that rises to over £4.4mil.

    I doubt anyone in the SIPP market would quibble at £20k CapAd, but £4.4mil is a different story altogether…

  3. Nick White, Pensions Law Limited 22nd November 2012 at 5:39 pm

    @ anonymous, 4.51pm

    Absolutely right: the £20k minimum figure is a complete distraction. What matters is the figure produced by the formula on p.11 here:

    http://www.fsa.gov.uk/static/pubs/cp/cp12-33.pdf

  4. Yes I don’t think everyone understands square roots!

    FSA seem to go from one extreme to another, from allowing SIPP providers to be massively undercapitalised to proposing huge sums to be tied up in sterile capital.

    Maybe SIPP providers should offer a SSAS alternative for their clients who are invested in commercial property?

  5. FSA man; We have taken on board…..yawn. We are going ahead regardless

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