At least three leading Sipp providers would fail to meet the new capital adequacy requirements if they took effect today.
Under the new rules, providers will be required to hold capital in reserve based on assets under administration, with an additional charge linked to the proportion of non-standard assets held.
Attivo has the lowest coverage of the firms that replied to Money Marketing, with just 50 per cent of the required capital, but says it “plans to ensure we more than cover our capital adequacy by the time it is due”.
Attivo risk and compliance director Ian Plumpton says: “The non-standard assets we hold are only about 8 per cent. Some of our non-standard assets will probably be liquidated by September 2016. Currently our capital requirement is £70,000 – and we hold about £150,000 against that, and it will be £300,000.”
Rowanmoor says it meets 70 per cent of the capital required under the new rules.
A spokeswoman says: “As we are currently 18 months away from the date from which the new capital adequacy requirements will apply, Rowanmoor Group plc (Rowanmoor Personal Pensions Limited’s parent company) is not currently ringfencing all the working capital required in order for Rowanmoor Personal Pensions Limited to meet 100 per cent of its anticipated capital adequacy requirement.”
LV= has 95 per cent coverage.
LV= head of pensions Ray Chinn says: “We are at 95 per cent because we have a low proportion of non-standard investments. At the outset of the capital requirements it was felt it would be smaller Sipp providers who would be most impacted and have the biggest challenge. As a large Sipp provider we already significant capital under the current rules.”
Other firms approached either met or exceeded the requirements, or declined to comment.
Last August the FCA tweaked the rules to reduce the capital burden on providers with less than £200m in AUM because of fears that the original requirements could force some out of business. The regulator also confirmed that commercial property should be treated as a non-standard asset where it would take more than 30 days to complete a transfer.
However, a recent Money Marketing survey revealed that views differ among providers over how to treat property, with some calling for more clarification from the FCA.
Dentons director of technical servi-ces Martin Tilley says whether or not property is standard or non-standard affects his firm’s capital coverage by about 40 percentage points.
He says: “If all property is treated as standard we had coverage of 161 per cent of the benchmark had it been in force then. If all property was treated as non-standard the coverage would be 122 per cent.
“We need guidance as to what the industry is doing so we are all calculating and identifying standard and non-standard property in the same way.”
MoretoSipps principal John Moret says: “The results should provide some comfort to advisers and their clients. But the real question is how much protection the new capital requirements really provide and whether the holding of higher cash reserves puts financial pressure on some providers, leading to price increases or, at worst, pushing some companies into winding up.”