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Martin Tilley: Keeping on top of Sipp proposition dilution

Martin TilleyKnowing what assets each operator will accept and with what conditions is becoming increasingly difficult

The recent well-publicised events concerning Sipp operator asset acceptance have focused the mind of a number of advisers. We have been fielding enquiries about our own Sipp and the asset classes we as a Sipp operator would consider.

But this is not a new topic. Changes in Sipp operator propositions have been shifting largely because of regulatory action over the last three or four years. Keeping track of what assets each Sipp operator will accept and with what attaching conditions is becoming increasingly difficult.

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It is not helped by the generic term “self-invested personal pension”, which is deemed as covering everything from a simple technology-based platform vehicle giving access to listed stocks and shares and/or regulated funds, to bespoke arrangements that can accept the esoteric, such as intellectual property and unlisted shares.

The industry has long since tried to differentiate between non-workplace offerings. Popular categories have included:

  • Insured personal pensions: those provided by insurers with restricted fund offering.
  • Technology Sipps: those accessing listed shares or funds.
  • Sipp “lite”: giving access to platforms, discretionary fund management and some degree of commercial property assets.
  • Full/bespoke Sipps: more complex property, third party loans.

The problem is that individual offerings from several providers do not sit squarely in one category or another, and other offerings have “upgrades” allowing them to sometimes slide into the next category up.

Industry surveys try to determine exactly what each operator can accept. These can be a useful source of information for advisers in filtering provider propositions but it is impossible for them to be as detailed as might be needed.

Simply asking a Sipp operator if they accept unregulated collective investment schemes might result in a positive response but might not take into account the fact the provider limits exposure based on the individual Ucis’ liquidity or other criteria.

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For this reason, an adviser with a particular investment to place may need to revisit the main players each time to check their proposition still meets the client’s needs.

The following are four examples of the types of investments a Sipp operator might refuse to accept, or on which they might impose restrictions, together with examples of what those restrictions might be:

1. Commercial property

  • Overseas property
  • Joint purchase of property with the member, a connected party and/or third parties
  • Property requiring VAT registration and/or borrowing to assist with the purchase
  • The appointment of panel solicitors, surveyors, property managers and insurers

2. Third party loans

  • The borrower must be a limited UK company and, according to its accounts, been trading successfully for the last three years
  • Loans must be secured on an asset that could be accepted as an investment of the Sipp
  • Loans in aggregate restricted to no more than 50 per cent of the Sipp fund

3. Ucis

  • Evidence the Sipp member satisfies the high net worth/sophisticated investor requirements
  • Liquidity
  • Fund size
  • Availability of valuations
  • Investment in Ucis in aggregate restricted to no more than 50 per cent of the Sipp fund

4. Unlisted shares

  • Must be a UK limited company and, according to its accounts, been trading successfully for the last three years
  • Unlisted shares in aggregate restricted to no more than 50 per cent of the Sipp fund
  • A limit on the proportion of a company’s issued share capital that can be held for one or more members within the operator’s Sipp

Sipp operators have had to refine and focus their acceptance criteria in response to regulatory tightening, but also in response to experience of handling non-standard assets.

Restrictions in proposition are not necessarily indications of an inflexible or poor Sipp operator. In fact, the opposite could be true. Some operators will limit their exposure to certain individual assets as a means of risk management.

They might prefer not to hold a large number or concentration of a particular asset because, in the event of it becoming problematic or difficult to administer, it could have a disproportionate impact on its service proposition.

Operators will also undertake regular reviews of the total assets they are holding, investments recently acquired and the proportion of Sipps holding non-standard assets. Those that are deemed non-standard will have an impact on the operators’ capital adequacy requirements and, in order to maintain thresholds, they may take the decision to temporarily or permanently restrict acceptance of certain assets.

This emphasises the need for advisers to understand the propositions of any Sipp operator used for current and future clients.

Martin Tilley is director of technical services at Dentons Pension Management

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