Pension simplification has got a little bit more complicated with news that the Treasury is to consult on whether or not Sipps should be regulated.
With the consultation paper not due out until the end of the month, the industry has let out a big groan at the prospect of further reams of proposals to consider as they work towards shoring up their A-Day offerings.
The move has created a much more divisive reaction than many recent ones.
News that protected rights will not be allowed in Sipps was met with a collective boo while the announcement that members of occupational schemes will have their benefits protected should their schemes wind up through no fault of their own after A-Day brought a collective hurrah.
But the regulation of Sipps has met with some yeas and some nays. A lot of this seems to come down to self-interest. As the rules now stand, Sipp providers have to be regulated financial institutions, such as insurance companies, banks or building societies, even if the product itself is unregulated.
After A-Day, any company with at least one employee can set up its own scheme and roll it out to the wider market.
This will be facilitated by the removal of the need for Sipps to be on a trust basis.
Standard Life marketing technical manager John Lawson says this effectively means that two friends in a pub can set up a shell company with at least one employee and offer a Sipp to the market, regardless of their inability to administer it.
The potential risk of rogue companies entering the market is clearly a prime catalyst for the Treasury in wanting to introduce regulation.
Jupiter pensions director Colin Maloney says: “After A-Day, there is no need for trustees and anyone can register as a pension scheme manager. If you relax the rules, the crooks can creep in. I am not suggesting they will but it certainly gives them more scope.”
This leads to the arguments against regulating Sipps. Advisers say that pensions, especially non-stakeholder contracts, are sold rather than bought, so any adviser should hopefully be able to steer clients into Sipps offered by reputable providers.
Central Financial Planning director Ian Smith says adding a further layer of regulation over what is already in place for pensions will increase the admin burden and, ultimately, costs.
He says: “I think it is a really a bad thing and will not provide investor protection because investors can still buy unregulated investments to hold within the Sipp. All that will happen is we will have to fill out a lot more forms and that cost will be passed on direct to the consumer.”
But Lawson says not regu- lating Sipps looks anomalous, given that individual pensions will look increas-ingly similar after A-Day.
Friends Provident head of pensions Jeremy Ward says if the simplified regime is designed to mean that “a pension is a pension is a pension”, then the same regulatory regime should apply to all.
AJ Bell director & consulting actuary Andy Bell notes: “If Sipps are going to be treated seriously as a product, they have got to come under the banner of the FSA.”
However, Syndaxi director Robert Reid, who is a strong advocate of regulating Sipps, fears it will take “until dooms- day”, particularly in view of all the esoteric investments that might be included.
Fishburns solicitor Harriet Quiney says one way of regulating investments in Sipps is through tax controls. To an extent, Revenue & Customs is moving this way with the announcement that certain assets will be treated as “wasting assets” and will not qualify for tax relief.
What happens when cash is invested in a Sipp to obtain tax relief, then used to buy such an asset, is not clear. There is a danger that tax relief could be clawed back in some fashion.
Jupiter’s Maloney says an interesting by-product of Sipp regulation could be the sprouting of a cottage industry in compliance services. For example, advisers could buy the wrapper and administration services from one firm and the compliance function from another.