A Treasury consultation on the regulation of sipps is scheduled to close next week, but pension expert John Lawson queries whether the Treasury will drop its plans following the U-turn on residential property and prohibited assets in self-invested pensions.
Head of pensions policy at Standard Life, Lawson says there is a big question over whether the regulation will proceed after the announcement in the pre-budget report stating tax relief will be removed from residential property and esoteric assets such as fine wines, antiques and vintage cars.
The consultation, Proposed changes to the eligibility rule for establishing a pension scheme, sets out four options for the regulation of sipps, one of which is a do nothing approach, but the favoured option from the government seems to be option three which would create a new regulated activity of establishing, operating and winding-up a personal pension scheme, from April 2007.
In effect this would leave a “gap year” during which sipps, not containing regulated investments such as Oeics, unit trusts and insurance policies, will be unregulated. But Lawson says given that we are restricting the investments to the current asset classes we already have, should there be regulation at all of a sipp wrapper or personal pension wrapper given that everything, or most things are regulated anyway.
He adds: “If you’re selling a collective scheme as part of a sipp, that product is regulated, as is the sale and as is the advice. The only thing not regulated would be residential property which is now not allowed, so what’s the point?”
Rachel Vahey, pensions development manager at Scottish Equitable, says she is unsure what the Treasury’s reaction will be, particularly as a draft statutory instrument supporting option 3 was published in October.
She adds: “As the consultation is still alive, we will be going back with a response although we are still working out the details of our stance. From our point of view, the main impetus for this consultation was the worry of residential property being sold by unregulated sipp providers, now that has been removed by a staggering and 11th hour decision, the Treasury may decide it doesn’t need to take further action.”
Alasdair Buchanan, group head of communication at Scottish Life, agrees there is a chance the Treasury will drop the regulations if they see it is no longer relevant given the FSA’s risk-based approach to regulation, and now little risk remains, it would be the sensible route to go.
But he adds: “The question we maybe should be asking is, is there any reason for them to continue with the legislation? Although on a practical level, it would seem sensible to drop the legislation, from a legal point of view the possibility of putting residential property and esoteric assets into sipps is still possible, although deeply unattractive, and the change in the pre-Budget report is just a proposal not legislation. So they may decide they still need some form of regulation to reflect that the investments are still possible. It seems to be much more convoluted and complex than you first think.”
John Battersby, a spokesman from the Treasury says the consultation focuses on how the FSA will regulate sipps, and that the regulation is still a valid point as sipps still exist and there will still be investment products contained within them.
He continues: “The consultation is still very much relevant and alive, and there are various issues the consultation is looking at which will still apply. Our intention is to pursue the course we’re already on and the view is that the FSA is going to regulate.”
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