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NEWSLETTER: NEW CAPITAL ADEQUACY REQUIREMENTS FOR SIPP PROVIDERS AND UNREGULATED INVESTMENTS WITHIN SIPPS

Contributed by SIPP Specialists Limited
21 November, 2014


This newsletter is meant for financial and other professional advisers.
Members of the public should not rely upon it.

Capital Adequacy for SIPP Providers
At long last the FCA has issued their final decision on the amount of Capital Adequacy that a SIPP Provider will in future be required to hold.

The formula is somewhat complicated and relates to the square root of the total assets under management of the SIPP Provider, with various adjustments, particularly for non-standard investments. The FCA has stuck to this measure even though the vast majority of the 57 responses that were made to their original proposals opposed that measure as being unsuitable.

In a major relaxation from their original proposals, the FCA has decided that commercial property will be treated as a “standard” investment. 

The new Capital Adequacy requirements will be a significant increase over the current Capital Adequacy requirements for all SIPP Providers. These come into force with effect from 1st September 2016, ie in 2 years time.

We have always run a prudent business and have been steadily building up our liquid assets. We are pleased to confirm to advisors that we already have enough liquid assets to meet the new Capital Adequacy levels as they would apply to us if they were in force today – so we are 2 years ahead of the game. We will continue our policy of prudence and steadily increase our liquid reserves over the next 2 years, so as to always have a comfortable margin over the minimum FCA required level of Capital Adequacy.

It is well known that a number of SIPP Providers will have serious problems meeting the new Capital Adequacy levels. This will no doubt lead to a number of them leaving the marketplace. Advisors should of course carry out their own due diligence on their preferred SIPP Provider(s) to ensure that they are comfortable that they will be able meet the new Capital Adequacy requirements.

FCA Third Thematic Review of SIPP Providers
The FCA has also published its third thematic review of SIPP Providers. They are very critical of a number of SIPP Providers for carrying out inadequate due diligence on non-standard investments and/or allowing them to be put into SIPPs for members for whom they were inappropriate – usually via unregulated advisors.

We understand that the FCA has issued notices to a number of SIPP firms prohibiting them from writing any more non-standard investments. They may well take action against individuals at some SIPP Providers.

We, along with most SIPP Providers, had a visit from the FCA. We are pleased to say that they were happy with the due diligence procedures that we follow for non-standard investments and subsequently wrote to us to confirm that they are happy with the way that we deal with them.

Non-standard investments
We are prepared to consider non-standard investments, but have rules that must be followed. These include:

a) They must be for high net worth or sophisticated investors
b) We require the IFA to advise us why they consider that this investment is suitable for their client.
c) We require the IFA to send us a copy of their own due diligence on the investment.

We will then carry out our own due diligence on the investment, and this will incorporate the 5 key areas

a) specified by the FCA:

1.      Correctly establishing and understanding the nature of an investment.
2.      Ensuring that an investment is genuine and not a scam, or linked to fraudulent activity, money-laundering or pensions liberation.
3.      Ensuring that an investment is safe/secure (meaning that custody of assets is through a reputable arrangement, and any contractual agreements are correctly drawn-up and legally enforceable).
4.      Ensuring that an investment can be independently valued, both at point of purchase and subsequently
5.      Ensuring that an investment is not impaired (for example that previous investors have received income if expected, or that any investment providers are credit worthy etc).

b) We restrict the amount that a member can invest in a non-standard investment (the norm is no more than 20% of their total pension assets)
c) Their age and the term of the investment need to be considered.
d) A minimum level of cash is always required within the SIPP.

Any advisors who have clients who might wish to invest in non-standard investments are welcome to contact us so that we can advise them of our full requirements.

There is an additional fee for non-standard investments. Although such investments increase our Capital Adequacy requirement we are keeping our fees at their current level (unlike some other SIPP Providers). We have never charged hidden fees or commissions or taken a turn on bank accounts, as is still common practice with some other SIPP Providers.

Our SIPP offerings
We offer a very wide range of SIPP products, all supported by high quality personal service, backed up with state of the art administration software, and competitively priced.

Acorn Lite SIPP
This is appropriate for the majority of clients:

  • Cash and up to 2 regulated investments allowed (can include DFM and/or platform):
  • No set up fee
  • Annual fee £275 + VAT
  • No transfer in fee (if arranged by advisor)
  • No contribution fee
  • No investment fee

Insight SIPP
This is appropriate for property and non-standard investments

  • Full range of investments including property and non-standard investments (subject to satisfactory due diligence etc):
  • Set up fee £200 + VAT
  • Annual fee £500 + VAT
  • No transfer in fee (if arranged by advisor)
  • No contribution fee
  • No fee for standard investments
  • Additional fixed fee for property or non-standard investments

DFM SIPP
This is appropriate for those clients whose assets are solely a Discretionary Fund Platform:

  • Only investment is a DFM platform
  • Range of managers and platforms available
  • Online Application Form
  • Totally automated process
  • Competitive fees (dependant on the platform used)
  • No transfer in fee (if arranged by advisor)
  • No contribution fee
  • No investment fee other than the platform charges

This is currently offered via the Praemium platform – full details are at http://www.sippspecialists.co.uk. We will be adding more platforms in due course. 

We will continue to develop our SIPP offerings, especially to take account of the drawdown changes effective from April 2015.

Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:

July2014

3.00%

August 2014

3.00%

September 2014

2.75%

We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing.  Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.

This Newsletter is intended for professional advisors only, not members of the general public  

September 2014         

Sipp Specialists Limited Oaklands Park
Hooton Road
Hooton
South Wirral
CH66 7NZ

 

Tel: 0151 328 0594
Fax: 0151 328 0707
www.sippspecialists.co.uk




 


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