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Sipp operators could face 20-fold cap-ad hike

FSA Skywards Tower 480

Experts say some Sipp operators could see capital requirements increase 20-fold if the FSA presses ahead with plans to link the amount of money providers hold in reserve to “non-standard” asset exposure.

Last week, the regulator proposed increasing the minimum amount of capital a Sipp operator must hold from £5,000 to £20,000, with a surcharge for providers holding non-standard asset types.

The surcharge for non-standard assets will reflect the additional costs of transferring these assets. The FSA says this is necessary because it takes longer to transfer a scheme containing non-standard asset types. Non-standard assets will be defined by reference to a list of standard assets.

The regulator has also proposed linking capital requirements to each Sipp firm’s assets under administration, meaning those administering the most assets will need to hold the highest amount of capital.

Barnett Waddingham partner Andrew Roberts, who is also chairman of the Association of Member-directed Pension Schemes, says the consultancy firm’s Sipp arm will need to hold four times as much capital as it does at the moment to meet the stricter requirements proposed by the FSA.

He says: “A lot of people I have spoken to in the industry are staggered by the increase they will experience under these proposals.

“We are looking at a four-fold increase, which won’t be a problem, but some are looking at a 20-fold increase in capital requirements.”

Suffolk Life head of marketing Greg Kingston says: “We do not think this will have a material impact on our capital requirements. A lot of our older business was written under our insured scheme and therefore will be exempt from the current proposals.

“But some of the other players in the market have a significant exposure to non-standard assets. There will certainly be some shocks for finance directors at some providers when they run the numbers on this.”

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  1. I don’t kno why FSA didn’t just increase the capital requirement to say 12 months expenditure . I think they were worked that some firms with a associated companies were fudging the figures which I am sure is true.

    But the FSA should just Look under the bonnet of those firms. Instead it’s throwing the baby out with the bath water again.

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