SIPPs: FSA to increase protection for SIPP investors


The FSA (Financial Services Authority) has today issued proposed new rules to increase protection for investors in the event of a SIPP provider failing.

The FSA started to regulate SIPPs (Self Invested Personal Pensions) in 2007. Since then the SIPP market has grown significantly both in terms of the amount of money held in SIPPs and the range of investments held.

The FSA has become concerned that some SIPP providers have insufficient financial resources to organise an orderly wind down of their business in the event of the provider collapsing, or deciding to exit the market.

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David Geale, the FSA’s head of investment policy, said: “While the SIPP market has grown substantially over time, the capital regime has not changed and needs bringing up to date. These proposals reflect the volume, range and complexity of assets now being put into SIPPs and ultimately will protect investors better in the unfortunate event an operator is wound down.

If a SIPP provider has insufficient assets to organise a wind down, which would normally involve a transfer to an alternative company, the FSA is concerned that the costs would have to be funded by the SIPP members, which could possibly give rise to a tax charge from HMRC.

What is the FSA proposing?

Simply put the FSA is proposing that SIPP providers will have to keep more money in reserve to meet the cost of transferring their SIPPs, or winding down the business, if this is necessary in the future.

At present each SIPP provider has to hold at least £5,000 of capital or six weeks of expenditure, whichever is higher.

Under the new proposals the minimum amount of capital needed will be increased to £20,000, but is likely to be higher and will depend in the amount of assets under management of each SIPP provider and also the amount of ‘non-standard’ investments they administer.

David Geale again: “Put simply: the more assets you have under administration – the more capital you will need; and if some of those assets happen to be more risky you will need even more.

“We believe these proposals are pragmatic and proportionate, but this is a consultation so we want to hear from the industry and consumer groups to ensure they are also balanced.”

“What do the FSA deem to be a ‘non-standard’ investment?”

The FSA has identified a list of ‘standard’ assets, with anything not on the list being classes as ‘non-standard’. These are generally investments which would cost more and take longer to transfer in the event of a SIPP provider failure. Included within this category are UCIS (Unregulated Collective Investment Schemes), other types of unregulated investments and perhaps surprisingly, directly held commercial property.

Commercial property is a very common investment within a SIPP and there was some surprise that the FSA chose to group this type of investment with other, far riskier assets, such as overseas land, biofuel, and unquoted shares.

Speaking after the announcement a number of SIPP providers said that they would be writing to the FSA to protest about commercial property being classed as ‘non-standard’, when it is relatively easy to sell and has been used for many years by SIPP investors with few, if any, problems.

“This all sounds very technical, how will it affect my SIPP?”

Good question!

In the short term SIPP investors will probably see very little impact, although if the proposals are implemented, the protection for consumers will be increased in the event of a provider failure.

However, there could be significant implications for the SIPP market on the longer term.

Firstly, the FSA estimate that the proposals will force SIPP providers to hold between £12 million and £54 million extra in reserve, with smaller SIPP providers, and those with more exposure to ‘non-standard’ assets, including commercial property, being hardest hit.

The requirement to significantly increase reserves could mean that SIPP providers, especially those with exposure to ‘non-standard’ assets, might need to increase their fees to help meet the additional cost of the new rules.

Secondly, the FSA believes that 75 SIPP providers will be affected and has estimated that 13 will choose to leave the market entirely. Such a contraction, at a time when more mergers between SIPP providers appear to be on the cards anyway, will undoubtedly mean less choice for SIPP investors. Although the FSA believes that there will be sufficient providers left in the market to maintain competition.

The full consultation paper can be read by clicking here.

Our team of Independent Financial Advisers in Nottingham are experienced in advising SIPP investors, if you would like to discuss the FSA consultation paper and how it affects you call one of our IFAs today on 0115 933 8433, alternatively enquire online or email