Almost all self-invested personal pension (SIPP) providers are meeting the capital adequacy rules introduced 12 months ago, the Financial Conduct Authority (FCA) has said.
In response to a Freedom of Information request, the regulator said it is currently working with one unnamed firm who did not meet the new rules to “ensure they address” the new requirements.
“As of 16 August 2017, one self-invested personal pension provider is not currently meeting the new capital adequacy rules introduced in September 2016. The FCA are working with the firm to ensure they address their capital adequacy requirements,” it said.
The new rules set the fixed minimum capital requirement for SIPP operators at £20,000 and set a capital surcharge for firms holding non-standard assets, among other things.
In the run up to the implementation of the rules last September, some market commentators speculated they would force consolidation in the SIPP market as they expected some providers to struggle making the necessary changes.
A report from FinalytiQ last June found five out of 18 non-insured bespoke SIPP providers were loss-making. It also warned pre-tax profit margins of SIPP providers had dropped from an average 40% in 2012 to 20% in 2015.
MoretoSIPPs MD John Monet, who co-wrote the report with Finalytic, said last May: “The requirements will mean many of the smaller firms are unviable. But who would want to buy them? They aren’t particularly valuable, but the businesses themselves probably won’t be able to run the SIPPs as a closed book either.
“I suspect many of these SIPP providers will be run on a wind-down basis. This is bad for clients and bad for providers, and the industry will pick up the tab. This worrying situation has been created by the regulator.”
Increasing costs
SIPP provider Momentum Pensions said in June advised clients were increasingly hit by surprise SIPP charges. Many advisers, according to the firm, blamed the new capital adequacy rules for increased charges on both standard and non-standard assets.
Four-fifths (79%) of advisers the firm surveyed said they would support the regulator enforcing more transparency in relation to such charges.
The rules
Introduced in September 2016, the capital adequacy rules for SIPP providers state:
• The fixed minimum capital requirement for SIPP operators is set at £20,000
• Assets under administration (AUA) are to be calculated as the average of the value of the personal pension schemes administered by the firm at the most recent four quarter end dates
• A capital surcharge is to be applied for firms holding non-standard assets as follows: Capital surcharge = (√percentage of plans containing non-standard assets) x 2.5 [constant] x initial capital requirement
• Commercial property held in a SIPP is to be classed as a ‘standard asset’. Previously, the regulator had classed commercial property as a ‘non-standard’ asset but has now listened to feedback from the SIPP industry
• Physical gold bullion, national savings and investment products, bank account deposits, units in regulated collective investment schemes and UK commercial property are to be classed as standard assets
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