In January the Association of Member Directed Pension Schemes (AMPS) announced it would be reaching out to members following the FSA's consultation on capital adequacy. Chairman Andrew Roberts talks to Helen Morrissey about the issues the industry faces
How is AMPS engaging with the SIPP industry regarding the FSA's proposed capital adequacy requirements?
The first part of our engagement programme was to launch a series of four roundtables across the UK for members.
We wanted as many people as possible who are affected by CP12/33 to come and we had good take-up The first roundtable was held on the 8 January with the final one being completed on 23 January.
The roundtables were held on the same day as the thematic review workshops being held by the FSA as we wanted people to get the most from the day as possible. It was really interesting to hear people's experiences.
For instance we had some SIPP operators who discussed their experiences of taking over other SIPP operators.
If a SIPP operator gets into trouble then it isn't just their expenditure that needs to be taken into account, but also the costs of other firms coming in to help wind-up the firm. This is why an expenditure based model for capital adequacy does not work.
In addition there were also some issues raised about commercial property at the roundtables.
While commercial property is an acceptable investment within a SIPP you could get a situation where problems could arise when transferring from one SIPP to another.
For instance you might find that the transfer breaks the 50% borrowing limit and leaves the SIPP open to charges.
What issues does AMPS have with the approach the FSA has put forward?
There is disbelief that the model the FSA has put forward would work in practice. Most SIPP providers are already holding 13 weeks' worth of money which is enough to run the business.
This is being extended with some providers having to hold one year's worth of money while others may need four years' worth. I do not believe this is a level playing field and we feel consumers are best protected when being looked after by a profitable SIPP provider.
It is also worth pointing out that the extra costs associated with due diligence and capital adequacy will feed through to the consumer.
The FSA's formula is geared towards large rather than small companies and we have to bear in mind that some consumers prefer to deal with small companies.
It's also the case that the more you increase the cost of regulation in SIPPs then the more likely you are to see clients moving towards more unregulated products such as SSAS and QROPS where there is less consumer protection.
Is this the right answer for providers or has the FSA gone too far?
A dozen or so providers could actually have to leave the industry as a result of the proposed changes - are they hurting customers? I think the issue has massive implications for the SIPP market.
Our plan is to come up with an alternative plan that all AMPS members think will meet the FSA's requirements. This will be evidenced and backed up by robust data.
Do you believe the FSA is picking on SIPP providers?
I do not believe the FSA is picking on the SIPP industry but I do think that what they are doing is out of kilter with other regulators.
Generally SIPP providers are not out to cause their clients harm and we have no issue with capital adequacy measures providing a level playing field across the industry.
Providers are applying capital adequacy so we do not know why we have seen such a disproportionate response from the FSA. We want these measures to improve levels of consumer protection.
If the formula the FSA is proposing is correct then providers will need to hold 100% of what is needed to wind up the business - we do not feel that this is an efficient way to do business.
We do not wish to go against the FSA but what we are trying to do is develop a credible plan that we can put forward to them. I believe we are close to agreeing something.
It has been difficult to come up with an alternative in just three months and we don't want to put forward something the FSA can just dismiss straightaway.
I also think it is important, as the industry has taken the time to try and understand where the FSA is coming from, that the FSA also takes appropriate time to look at what we have got to say.
We aren't complacent - we know that standards can always be improved. We have seen some SIPP providers go to the wall in recent years but the number of people affected was relatively small.
In 2007, SIPPs were a niche product but we have seen a lot of growth since then. This has primarily come in the contract-based SIPP area which is not affected by capital adequacy.
The bespoke SIPP market remains a niche market. It has faced its challenges but standards have actually increased over time as part of organic improvements. It is hard to see how regulatory changes could lead to providers exiting the market.
What other areas is AMPS working on?
We are still working with HMRC and the Treasury on income drawdown, in particular the new forms of protection that will come in as a result of the changes to annual and lifetime allowances.
It is good to begin dialogue as early as possible in these circumstances. Other issues we are paying attention to include the due diligence of investments in SIPPs.
The FSA recently said they did not expect SIPP operators to assess the suitability of investment advice but expect them to be responsible for the investments they hold in the wrapper.
This is good news and a work in progress for the revenue, FSA and SIPP providers. The changes in disclosure requirements were disappointing not because we want to hide anything from consumers but because we don't want to see clients having to pay extra for something they are receiving very little benefit from.
Again in terms of income drawdown - we did not expect the government to reinstate 120% maximum GAD in the Autumn Statement. It was a very bold step for the chancellor to take.
It is an effective U-turn but it was good to see the government doing what was right for people rather than worrying about how they would look. Whether it is a long term position or not I'm not sure.
• AMPS is the main trade body that looks solely after self-invested pensions such as self invested personal pensions (SIPPS) and small self-administered schemes (SSASs).
• AMPS has in excess of 200 member firms representing all parts of the industry: SIPP providers, SSAS practitioners, pension lawyers, software developers, banks and investment houses.
• AMPS is run by a committee elected from representatives of member firms by the membership. Among its varied duties the committee makes representations on behalf of the member-directed pensions industry to government bodies such as HMRC, Treasury, FSA and DWP.
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