The FSA should not treat SIPP providers as insurers for the sake of protected rights, warns Hazell Carr.
The provider’s comments follow market concern SIPP providers will face an uneven playing field when offering protected rights unless the regulator places the same capital requirements on them as insurers and demands the same FSA fees.
Hazell Carr says such requirements would prove inappropriate because the SIPP company would not provide the underlying investment.
The Government’s consultation on protected rights, which closed last Friday, outlines plans for greater solvency requirements for insurance-based specialist SIPP operators than trust-based SIPP operators.
Stuart Russell, technical director at Hazell Carr, says: “It is likely that forcing SIPP providers down the same route as insurers would lead to many deciding not to take protected rights funds at all – leaving investors with the same un-level playing field as currently exists.
“If an investor understands the risks of a SIPP and the way in which underlying investments are treated, they should be able to decide where to invest those funds. There is no reason why the SIPP provider should be subject to unduly onerous capital requirements.
“Certainly there will be issues associated with the concept of investing protected rights into a SIPP, whether these be investment risks or concerns over compensation protection, but as with all pensions matters the crux will be around suitable advice rather than restricting client choice.”
Earlier this month John Moret, director of sales and marketing at Suffolk Life, commenting on the issue said: "We believe it is entirely reasonable to require a higher level of investor protection of protected rights given that the source of those rights is either partially or totally a rebate as a result of contracting out of the state second pension.”
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