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Sipp storm brewing

Sipp regulation has dominated the world of pensions this week, something Gordon Brown must be pleased about.

The new regime came into force on 6 April and the FSA revealed it has not turned down any of the 135 or so applications sent in. It listed 41 newly authorised firms and 22 interim authorised firms, presumably leaving 72 firms that applied for varied permission.

Surprisingly several big name firms, including Norwich Union, Winterthur and AWD Chase de Vere only managed to achieve interim authorisation – meaning their Sipp customers will not receive the protection of the FSCS until they receive the FSA’s stamp of approval. Tomorrow, formerly GE Life, says it received its full authorisation from the FSA earlier this week.

The number of Sipp firms that have fallen by the wayside is unclear at this stage. The FSA revealed it has no plans to publish guidance for orphaned Sipp clients of firms which did not make the grade or did not apply for authorisation.

It said it is likely to take a reactive approach to firms operating illegally as it has no ready means of identifying them but will take appropriate action as and when they are discovered.

This has attracted some criticism from advisers who argue the FSA should take a more proactive approach and say the fact that the FSA cannot identify unauthorised firms which have not applied for regulation does not mean they should not publish guidance for orphaned Sipp clients.

Also this week, Scottish Life had a pop at some of its rivals for being “economical with the truth” on Sipp charges, warning that advisers could be hit by misselling complaints if they’re not very careful.

The firm has published research in response to the FSA’s recent warning that it is concerned about commission-driven Sipp sales and people who are better suited to stakeholder or personal pensions being pushed into higher charging Sipps.

The research singles out Standard Life, Aegon and Scottish Widows and says all three providers run their Sipps on a higher base charge than their PP offerings.

Although there is nothing inherently wrong with this, Scot Life claims many of these Sipps will hold exactly the same investments as the cheaper PP offering – pointing to industry research which suggests less than 10 per cent of insurance company Sipps are invested outside insurers’ fund range.

Concerns over the justification for the boom in Sipp sales are compounded by the fact that, according to ScotLife, all three of the named firms pay more commission on their Sipps than they do on their PPs.

As such, it argues, advisers need to be extremely careful they can justify recommending a more expensive deferred Sipp to their clients, particularly if they remain invested in insured funds.

This warning has been trotted out before by Norwich Union – another firm which does not rely particularly heavily on its Sipp proposition. But that does not make the concerns any less valid.

Whether it is fair to apply this criticism to these three firms or not, there is no doubt that under the new Sipp regulatory regime, the FSA will be looking very closely at suitability of Sipp sales and advisers need to think very carefully when recommending a more expensive product – particularly when higher commission levels are thrown into the mix.

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