The FSA's move to raise capital adequacy minimums for SIPP providers may fuel consolidation in the market, leaving the future of some administrators uncertain. Jenna Towler finds out what it means for advisers…
About half of all new pensions sold in the UK are now self-invested personal pensions (SIPPs), according to the latest sales data submitted to the Financial Services Authority (FSA), meaning the product is now mainstream.
This mainstream status brings with it necessary regulatory oversight to ensure consumers are not left exposed. The FSA’s latest move to tighten up the SIPP market is its consultation on providers’ minimum capital adequacy (cap ad) levels.
The consultation was launched last year and is due to close on 22 February.
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If it goes ahead unchanged [see the orange box on the second article page] it is widely predicted that the number of operators will shrink, as many will struggle to meet the new requirements.
Providers will only have 12 months to reach the required levels, according to the FSA’s paper, meaning the effects will be seen quickly.
Dentons director of technical services, Martin Tilley, said advisers would have to keep a watchful eye on the market.
“Depending upon the final requirements it will be clear quite quickly that some providers, and this might not be restricted to the ‘smaller ones’, may not be able to meet the benchmark and thus consolidation in the market will be inevitable.”
Tilley said placing a SIPP with a provider now needed careful scrutiny – the adviser should be thinking about whether the provider would still be in business in three or more years’ time.
“If the chosen provider’s SIPP book moves on, it may be to a new provider who may have very different product terms or levels of service. If the new provider’s offering does not suit, a transfer to a new provider could be costly, time consuming and potentially embarrassing.”
Aviva’s head of pensions, John Lawson, said heightening SIPP capital adequacy would enhance consumer protection and bring small operators on to a level playing field with major players in the market.
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