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Specialist View: May

SIPP Capital Adequacy Requirements. Should you be concerned?

“There’s many a slip between cup and lip…”

Ok, so strictly speaking this is not quite a quote about SIPPs, but nevertheless the proverb makes an important and relevant point. It’s a saying we all know: quite simply, don’t count your chickens before they hatch. Although it’s a well-known saying, did you know that it originates all the way back to 850BC?

According to Burton Stevenson, the compiler of the authoritative The Macmillan Book of Proverbs, Maxims, and Famous Phrases, the phrase derives from the scene in Homer's Odyssey, Book xxii 8-18, in which Odysseus kills Antinous, one of the suitors, as Antinous, ignorant of any danger, is about to take a sip of wine.

So what does this saying have to do with SIPPs? Quite a lot, actually. From 1 September 2016 the FCA’s capital adequacy rules come into play. These rules, whilst offering greater comfort to investors, will make it more difficult & challenging for some SIPP providers to operate. The need to upgrade technology and IT systems, implement tighter risk controls and meet increasing client demand in the wake of the pension freedoms increases the pressure on SIPP providers.

The background behind these rules comes from the FCA’s thematic review of SIPP operators in which the Regulator said it considered inadequate research and due diligence as causes of suitability failings. As a result, adviser due diligence has never been higher on the Regulator’s agenda.

While most client assets will not necessarily be at risk as a result of these changes, some providers are sitting on a lot of esoteric assets, which are likely to be classed as non-standard assets. This means SIPP operators have to hold higher capital reserves.

In broad terms the rules, to be implemented in less than four months' time, state that the minimum capital holding for a company trading in SIPPs is £20,000 and providers will be required to set aside further funds depending on the volume of non-standard assets.

The risk is that even clients with relatively standard assets may end up with providers that their advisers feel uncomfortable with, in terms of cost, service, reputation, or financial stability, never mind the damage the uncertainty does to the relationship between adviser and client.

And these concerns have been felt by advisers. A report from Momentum Pensions, which questioned 101 financial advisers, found that 45% of specialist retirement advisers are concerned that their SIPP providers will not be able to meet the capital adequacy requirements. Potentially this could mean that some SIPP providers will have to exit the market.

So should you be concerned about Sanlam as a SIPP provider? Rest assured, with Sanlam you are in safe hands.

As part of a global AA(-) rated financial services group, renowned for its good fiduciary practice, we can assure you that we are a well-capitalised SIPP operator that is always fully aware of the strength of our financial position. We have considerable experience of ensuring that customers’ investment interests are not compromised. 

What’s more, besides our general financial strength, the main reason that Sanlam may fare better on the capital adequacy requirement is because, unlike most SIPP providers who solely operate trustee based SIPPs, we offer an insured SIPP as well as trust-based SIPP investments all under the one umbrella, i.e. the OneSIPP product, with the default that assets are held on the insured side, where this is possible. In view of this as an insurance company, we are already required to have much larger capital reserves, far in excess of what is required under the proposed capital adequacy requirements.  Add to this that we’re part of a worldwide financial services group and are not privately owned, like some SIPP providers, this means we’re already in a comfortable financial position and won’t have to find extra capital to meet the new requirements.

And for an insured SIPP which is subject to the FCA’s permitted linking rules (COBS 21), we know what to look out for. Our standards are high; because we believe that in the long-term client’s interests need to be protected. On that note, an additional factor that mustn’t be overlooked is the benefit of the FSCS.  Our insured SIPP customers benefit from the highest levels of protection from the FSCS with no upper limit. This is higher than what would be available for trustee SIPPs for clients with assets of £50k or more. Please see our FSCS factsheet here.
In summary, you can feel confident in using Sanlam as a SIPP provider. If you would like to learn more about Sanlam, the services we offer or to speak to one of our representatives, irrespective of whether it’s a detailed enquiry or you’d just like to chat, please do get in touch.

We’d love to talk.

Issued: May 2016

This note is to be used by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at April 2016 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

Past performance is no guarantee to future performance. The value of investments can fall as well as rise so investors could get back less than they invest.

Sanlam & Sanlam Investments and Pensions are trading names of Sanlam Life & Pensions UK Limited (SLP (Reg.in England 980142)) and Sanlam Financial Services UK Limited (SFS (Reg. in England 2354894)). SLP is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. SFS is authorised and regulated by the Financial Conduct Authority. Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol BS1 2NH. 

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.