Jan Regnart’s article provides a valuable and informed insight into some of the reasons why many providers of self-invested personal pensions appear to have delayed submitting their application for FSA authorisation. However, the issues she describes so accurately do not apply to a small number of Sipp providers that are already regulated and have been so since Sipps were first launched back in 1988.
What is not widely understood is that there are two ways of establishing a Sipp, neatly summarised by the Revenue in guidance note IR76 2000.
The first way is trust-based, which is the most commonly used because it is relatively quick and simple to establish and – until April 2007 – is unregulated by the FSA. When commentators refer to Sipps, they are usually referring to trust-based products.
The other way is as a personal managed fund attached to a unit-linked insurance policy. At a time of potential uncertainty over the continuity of some Sipp providers and the potential for imminent regulation to cause disruption and increased operating costs, providers using this structure can provide significant benefits to IFAs and their clients.
Years of complying with regulatory requirements means these providers have had plenty of time to develop the robust back-office systems and controls that trust-based providers are encountering for the first time.
At the same time, insurance-based providers have also had to satisfy the FSA of the adequacy of their capital provision and associated management of risks.
Insurance-based providers also have considerable experience of working within the FSA’s conduct of business rules, including those related to financial promotions. Some trust-based providers claim to have previously treated their Sipps as regulated but there is a world of difference between complying with some aspects of regulation when it is expedient to do and having to comply across the board because now it is mandatory.
It is also worth pointing out that the inherent robustness of the insurance-based Sipp structure has long been recognised by the Department for Work and Pensions and it is the reason why the DWP allows only insurance-based Sipp providers to offer the self-investment of protected rights.
Depending on your point of view, there are some limitations (or additional protection) in dealing with insurance-based providers. For example, they may be more selective about the types of commercial property they will accept, particularly if there is any suggestion of a contamination risk. They are also subject to some restrictions about the more speculative types of collective investments they can accept, due to the permitted linking rules, but they can normally cater for the majority of investments that clients typically want to invest in.
As Jan Regnart so rightly points out, running a Sipp business requires certain skills, expertise and experience to ensure that the operation is efficient and provides advisers and their clients with a sustained level of continuity.
IFAs need to be aware that they do have a choice. They do not have to risk their reputations and their clients’ interests in deciding which trust-based Sipp providers will cope best with regulation. Some insurance-based Sipp providers have already been doing it for years.
Head of compliance