Claire Trott: Should advisers fear P2P Sipp investments?


The peer-to-peer lending debate has been rumbling on for a good few years now and does not seem to be coming to an end any time soon. Earlier this month the Treasury held a meeting with industry figures to discuss the subject. I was not there so cannot comment on what was said but I am sure it would not have been raised if they were not trying to get it approved. But getting the approval of the Treasury still does not make it a good idea and it could open all sorts of doors that perhaps should not be.

Connected party rules

The current thinking, at least by most, is P2P could fall foul of the rules that surround loans from Sipps. Loans from Sipps should only be made to unconnected third parties and, as the Sipp member would be unaware who their loan was being made to, it would be impossible to ensure it was not being lent to a connected person. HM Revenue & Customs has already made its feelings known that P2P will be an issue going forward. And who are we to argue? The implications of breaching the HMRC rules by making a loan to a connected person would be hefty tax charges.

There really is not any way around it so this rule would need to be waived in the case of P2P, which could lead to all sorts of other rules that are there for a reason being bent or changed. In addition, this could also lead to types of pensions liberation if unscrupulous firms decide to take advantage of it.

Financial Services Compensation Scheme

The FSCS now covers P2P but only if the member was given bad advice by a regulated adviser after 5 April 2016 to invest in a scheme that meets the FCA requirements. The compensation will be capped at £50,000 per investor and will not cover poor investment performance (and there is no reason why it should). This is all very well but, as we know, the FSCS steps in when the firm that has given the advice is unable to pay compensation. So, again, the levy will fall onto those still practicing and who may not be involved in the P2P market at all.

“Is P2P a suitable investment for a Sipp? That is the question providers are asked over and over again and then criticised should the answer change somewhere down the line”

Non-standard asset

It is clear P2P will be a non-standard asset under the capital adequacy rules, which should make a provider think twice about accepting it as an investment at all. That said, there will be those who will allow the investment and then we are back to the issue of the Sipp provider playing gatekeeper.

The member will need to understand the risks involved with the investment and in some cases choose the level of risk, even within the product. Providers have had their wrists slapped for letting members buy assets that are not within their risk profile or letting them invest all their pension within one asset class. I can easily see some will want to put their whole fund into P2P in just the same way they would into the stockmarket. But it is not the same, is it?

Not all bad

I am not for one minute saying P2P is a wholly bad investment but is it a suitable investment for a Sipp? That is the question providers are asked over and over again and then criticised should the answer change somewhere down the line, or the FCA takes a different view some time later with hindsight. The answer, generally, is it depends. Being able to make that decision about other people’s money without the full details of where the money is going, who it is going to and what the client knows and thinks is impossible. With this in mind, when deciding if it is right for a Sipp, the answer appears to be no: we do not have enough information.

Claire Trott is head of pensions technical at Talbot and Muir