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Rival firms clash over Sipp cap-ad property rules

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Rival Sipps firms are at loggerheads over how the FCA treats commercial property.

The regulator is introducing a new capital framework for Sipp providers from 2016 based on the amount of standard and non-standard assets held.

But the industry is divided over how commercial property should be treated and in June the FCA published guidance as part of a quarterly consultation. It said the “key consideration” is whether the assets are “capable” of being readily realised within 30 days.

The Association of Member-Nominated Pension Schemes’ response, seen by Money Marketing, reveals the body thinks commercial property should be considered standard.

Amps chair Neil MacGillivray says: “You don’t want to hold more capital than you have to, you can do other things with that money. It’s the esoteric assets that are causing the issue, commercial property’s been there since the start of Sipps and will it can be complex to administer it’s not the problem.

“It would appear wrong to have to classify it in such a way as to hold additional capital. For a lot of smaller bespoke Sipp providers it’s a major issue. Where as some of the traditional life companies that have moved into Sipps and the platform providers, a lot of them do not touch commercial property.”

However some providers – including Legal & General-owned Suffolk Life – think commercial property should be treated as non-standard.

Suffolk Life head of communications and insight Greg Kingston says the industry has to be prudent.

He says: “Investors should demand that their chosen Sipp operator has both sufficient capital and the means to invest for the future.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. And therein lies the problem folks… Neil and Greg are at polar opposites and either of them could be right or either of them could be wrong, and we just don’t know!! I suspect that this issue might become one of corporate appetite for risk – does a SIPP Provider plan for the worst case scenario (Greg’s view) and hold the maximum Cap-Ad contingency, or does it go with the best case scenario (Neil’s view) and hold the minimum? And the Elephant in the room??? Well that might just be the FCA and what they say about it to the SIPP Providers the next time they come knocking at their door with another Thematic Review in a couple of years time.

    • Spot on Andrew. It is surprising, given the regulator’s public lack on confidence in the SIPP sector, that the decision would be left to the discretion of a businesses individual risk appetite.

    • Indeed, Andrew: what does “capable” mean. If I buy a lottery ticket today, does that mean that I am capable of winning the lottery tomorrow night? If so, should I plan on the basis that that will happen?

      The FCA sought to clarify the 30 day rule in CP15/19, but I fear they’ve muddied the waters further. SIPP providers need real clarity: if push comes to shove, I suspect the FCA’s Enforcement Team would tend to adopt a stricter interpretation than some providers would wish for.

      My personal view is that a wholly-owned, UK, freehold, unmortgaged commercial property which is not subject to any 3rd party consents could be treated as a Standard Asset. However, once you have a leasehold interest, a mortgage or any form of 3rd party consent required, it’s difficult to see that there is any realistic expectation of a transfer within 30 days.

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