View more on these topics

Martin Tilley: What happens when the Sipp lifeboats are full?


The FCA’s third thematic review of Sipp operators and the increase in the benchmark for capital adequacy requirements have reduced the appetite and ability for some in the marketplace to continue in the long-term. The introduction of the tapering annual allowance from April next year is also likely to have an impact on new contributions to Sipps at the medium and high end of the market.

We expect many sales, mergers and consolidations within the industry before September 2016: the deadline by which the new capital adequacy levels must be met. If providers do not meet capital adequacy levels, the operator will simply have their permissions removed. This leaves us with the spectre of a forced wind-up; surely an unintended consequence of regulation.

Should this happen, or where consolidation is taking place, there are several ways a Sipp business can be acquired. T

he first is a complete purchase of the Sipp administration and trustee company, meaning the entire Sipp book, including all the assets (and potential liabilities, although these are often indemnified), is assumed by the new owner. As a condition of the deal, however, it might be required that certain Sipps, where assets are held that the new provider is not prepared to hold, must be extracted by transfer from the book (or the offending assets sold) prior to the deal.

The second route is the individual transfer of Sipps into the new provider’s vehicle. This way, the new provider controls exactly what assets it receives.

The problem lies in the fact there will be some clients holding assets the acquiring firms simply might not want.

Acquiring books of business can be problematic at best and the risk can only be mitigated by considerable due diligence by the acquirer. This process, though, can be hugely time-consuming and may still not fully uncover the extent of “toxic” assets – that is, those the new provider would choose ordinarily not to hold. These problems have already led to one significant Sipp player publically stepping back from any future purchases.

Some notable press commentary recently surrounding FCA action has also identified a number of missold assets that have found their way into Sipp operators’ books. These assets are often of negligible value and are usually the sole purpose the Sipp was created. As such, there are no other liquid assets from which a Sipp provider can deduct their fees and thus be remunerated for the continuing administration of the plan and subsequent disposal or wind-up of it.

What is more, a feature of the new capital adequacy calculation formula is that the greater the proportion of Sipps holding non-standard assets (as these toxic assets would undoubtedly be classed) the potentially higher capital adequacy the provider must hold.

In addition to requiring unremunerated administration, these Sipps may require the raising, and holding, of additional capital reserves.

As a result some Sipps might get left behind or be refused altogether by the new provider.

Some acquisitive firms may be prepared to take a little rough with the smooth, accepting a degree of toxicity for the greater good.

In effect, these firms will act as a “lifeboat” for those Sipp customers that might otherwise not find a provider to administer their plan. But there will be a limit to the number of cases each provider can accept. What happens when these lifeboats are full?

A Sipp provider of last resort has been mentioned; perhaps one that is Government funded or even funded through a levy on existing providers (although this is unlikely). The favoured route would be an existing provider taking on the business after negotiation with the regulator, such that liabilities would be ring-fenced and the Sipps would not count towards the capital adequacy calculation.

We are sure the consequence of some Sipp clients not being able to find a willing provider to take on their toxic assets is not what the regulator intended. Therefore, it is inevitable some may need to find themselves a capacious lifeboat.

Martin Tilley is director of technical services at Dentons Pensions Management



Corbyn backs flexible state pension age

Labour leadership favourite Jeremy Corbyn has pledged to introduce a flexible state pension age in the UK to address concerns the existing rules could create a “two-tier” system. Writing in today’s Daily Telegraph, Corbyn warns current increases in the pension age are unfair on workers with physically demanding jobs. The Islington North MP calls for […]

Pensions-savings-retirement-piggy bank

Investors reject Isa-style pension tax reform

Most investors support a radical overhaul of pension tax relief but reject proposals to introduce an Isa-style system, new research suggests. A survey of 2,300 people by Hargreaves Lansdown found that the vast majority of savers believe replacing tax relief on contributions with relief on withdrawals would make them less likely to save into a […]


Blinded by China: Why advisers shouldn’t write off emerging markets

The pressure on emerging markets caused by the Chinese stockmarket crisis, on top of recent underperformance, is leading many investors to consider abandoning the once very attractive asset class. Assets rushing out of emerging markets rose to $1trn (£650bn) over the past year while, last week alone, following the worsening market data coming from China, […]


Asset allocation: Thesis’ Hoggarth bets on Europe despite Greek fears

Thesis Asset Management’s Matt Hoggarth is keeping his focus on Europe despite the potential “domino effect” that many feared in the market during the peak of the Greek crisis. The senior investment analyst, who leads the stock selection process within Thesis, has recently doubled the European equity exposure of one of his mandates to 4.5 per […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm