Looking back at 2015 it is tempting to reflect that we have lived and worked through the greatest pension change of our lifetimes. However, pensions are now just as much about political capital as retirement capital. Further seismic changes can be expected in the future, and next on the list is the reform of pension tax relief.
Most full Sipp operators took the introduction of pension freedoms, on 6 April, in their stride. While other pension operators were besieged with calls to cash out small pots there was less impact on full Sipp providers.
Requesting permission
Anecdotal evidence suggests that there were more requests to convert capped drawdown to flexi-access drawdown (and change the pension income amount) than there were to fully withdraw the fund. That’s just as well, as the full Sipp market had its hands full elsewhere.
Last year’s Intelligence report explained how a crack had appeared between the full and platform Sipp markets. In 2015 that crack widened, and differences have become more complex and fragmented. The pace of change has been governed by the FCA, which has repeatedly raised concerns about some parts of the Sipp market.
The regulator has used two principal tools to address those concerns. Firstly, it introduced a new capital regime for Sipp operators which, after much consultation, appears to have settled and will be introduced in September 2016. This aims to increase the financial resilience of Sipp operators.
Secondly, the regulator categorised Sipp investments into standard and non-standard assets. Standard assets were generally liquid and easily tradeable whereas non-standard assets were more esoteric and unable to be realised within 30 days.
With a few loose edges the Sipp market was defined by the investments within it – standard assets being mostly the preserve of platforms which capitalised on better technology and lower costs, and non-standard assets remaining the specialist area of full Sipp providers.
But the change didn’t stop there. Due to pressure from the regulator or financial concerns (or a combination of the two) a number of full Sipp providers stopped accepting non-standard investments. It seemed a strange decision at face value, as it put them in direct competition with the platform market. Most full Sipp providers are small and would struggle to compete with the lower cost bases of platforms.
Then the regulator intervened once again and refined its categorisation of investments. A number of investment types that were once defined as non-standard became standard assets. In doing so they also relaxed the capital requirements for Sipp providers which, at first glance, may seem contradictory to the objective of a financially stronger Sipp market. More on whether advisers take investment classification into consideration can be seen in the Charts here.
But while the regulator and full Sipp providers have been on a lengthy, turbulent journey together, they have arrived at a destination where both seem to be relatively content – for now at least. The regulator has other good reasons to be pleased.
Better knowledge
They now know and understand the Sipp market better than before. The third thematic review of Sipp operators and the consultation on capital requirements has brought significant experience.
