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New rules could mean higher fees but future of full Sipps secure, say providers

New rules for self-invested personal pension (Sipp) providers have led some firms to increase fees, with the possibility that others could follow suit. But full Sipp providers say savers need not worry about the future of their flexible pots and remain undeterred from offering the full scope of investments.

As of 1 September 2016, all Sipp providers need to meet stricter capital adequacy requirements set by the Financial Conduct Authority (FCA). The rules require each Sipp provider to hold a minimum level of capital based on the type of assets they hold and particularly affect full Sipp providers, which hold less liquid and more esoteric investments. The rules state that those holding non-standard assets (broadly defined as those that cannot be sold or transferred within 30 days) will need to reserve higher capital amounts, meaning that investors holding full Sipps could be affected.

The changes are designed to make sure providers hold sufficient reserves to wind up their business if it failed and therefore prevent clients' pension assets being used to finance the administration. The rules have resulted in higher charges in some cases - for example GPC Sipp is charging a one-off £215 fee, while Sippchoice plans to charge investors annually £10 per £100,000 fund value, with a minimum of £25 and maximum of £250.

But providers say they will not be deterred from offering savers the most flexible possible pensions. Louise McWeeney, senior manager, Sipp compliance and technical, at Carey Pensions says the new rules have not changed the company's willingness to offer Sipps including property. She says: "We are still happy to offer full Sipps. We specialise in commercial property, so we would never not offer it and are still open for business." The provider offers a range of Sipps including full Sipps, group Sipps and standard Sipps.

Mark Canning, head of proposition & development at @Sipp, says: "We are still offering the full Sipp and the capital adequacy changes will not change or amend that; it will not change any of the investments in our investment universe or wrapper." Among the investments offered in @Sipp full Sipps are commercial property, unlisted shares and unregulated investments. For the 2016-17 financial year it charges set-up fees of £500, a £595 annual fund and set-up fee of £780 for properties worth £350,000, as well as annual fees of £575 per year for properties worth more than £350,000.

Jack Izzard PR for Liberty Sipp also claims the capital adequacy requirements will not affect the group's offer. He says: "Liberty Sipp has known about the capital adequacy changes coming into force for a long time and has made sure they are ready to meet it, so the changes will make no difference at all [to offering the full Sipp]."

Petronella West, a chartered wealth manager at Investment Quorum, uses Sippchoice as well as Suffolk Life and Carey Pensions UK for her clients. She argues that fee increases are not necessarily a bad thing and says investors should focus more on transparency and service than only on cost.

She says: "For me it's about transparency. We prefer those that are transparent about the impact the capital adequacy requirements is having on their bottom line. I like it where things are up front as opposed to obfuscated or not fully disclosed or hidden in the small print." Good administration, technology and customer service are equally important, she adds.

However, others have raised fears that the industry could struggle to cope with the new rules. FinalytiQ, a research firm specialising in pensions and platforms, published a controversial report earlier this year rating full Sipp providers on what it terms financial stability. The company named AJ Bell, James Hay and Mattioli Woods as highly stable, but other providers including Liberty SIPP, @sipp and Barnett Waddingham were given low or average scores.

However providers have hit back at that report and argue that savers have no cause to worry about capital adequacy. Mike Douglas, head of proposition at Hornbuckle, says the firm currently has a capital adequacy coverage ratio of 147 per cent. David Downie, managing director (actuarial and technical) at Rowanmoor (recently acquired by Hornbuckle), says: "Before the change of ownership [which was a strategic one], the Rowanmoor Group was in a very strong position with regard to the FCA's new capital adequacy requirements and had in fact exceeded the capital adequacy requirements laid out by the FCA well ahead of the 1 September deadline. The combined Embark Group now administers over £8.1bn assets for more than 70,000 clients and has one of the sector's strongest regulatory capital coverage ratios at >125 per cent."

Andy Leggett, head of Sipp business development at Barnett Waddingham, says: "Barnett Waddingham LLP is the parent company of our Sipp business and is a very profitable, cash-generative business with a strong balance sheet. The Sipp capital reserve requirements are small compared to Barnett Waddingham LLP's financial resources and our annual accounts evidence this. Since June our Sipp business has held around £1.9m in capital reserves, which is more than enough to meet the new requirements."

@sipp said its capital reserves would allow it to grow funds under management by 75 per cent without requiring any additional regulatory capital.

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By Emma Agyemang,
09 September 2016

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