New pension rules could drive out small Sipp firms

New regulation for personal pensions may drive smaller Sipp providers out of the market due to stringent capital adequacy requirements, according to market commentators.

The FSA’s new rules are set to come into force next April after the regulator got feedback on its consultation paper earlier this year.

The rules require Sipp providers holding client money or assets to set aside the equivalent of 13 weeks’ expenditure.

Standard Life marketing technical manager Andy Tully says this could equate to the annual profit for some businesses which could stop small Sipp firms from trading.

Tully says: “Holding this much capital could stop smaller Sipp providers from operating in the market because they need to find this cash to set aside. It could certainly make life difficult for them.”

Aegon head of pensions development Rachel Vahey says: “It would pose a threat to them but the whole principle behind it is client protection. Client protection has to be paramount.”

Under the rules, Sipps will not be classified as personal pensions on the payment menu as the regulator says comparing commission on a Sipp with the market average on personal pensions is misleading. The FSA says the fact that Sipps are not classified as personal pensions should be highlighted on the menu by Sipp providers.

Initial disclosure documents and key features documents for Sipps will not be mandatory from April 2007 as the FSA wants to tie in the changes with its review of the conduct of business handbook scheduled to come into operation in November 2007. Newcob, p58