If You Have A SIPP, Don't Miss This

If You Have A SIPP, Don’t Miss This
Red Sea Egypt by Julian Cohen. Why?

On 1 September 2016, many SIPP providers will be required to hold more cash in their businesses - find out below how this could affect you

The Forthcoming Rule Changes Have Already Seen A Number Of High Profile Mergers And Acquisitions Of SIPP Providers - But It's Not Always Good News

SIPP Providers React To The Rule Changes

So far, 2016 has been a challenging year for SIPP providers.  And it’s likely the activity won’t stop at any time soon.

In July 2016 alone, Hornbuckle’s parent Embark Group bought fellow SIPP provider Rowanmoor Group, having earlier bought the Avalon SIPP book.  Talbot and Muir bought the SIPP provider and SSAS business of Attivo Group.  And Suffolk Life acquired the book of business of recently collapsed SIPP provider European Pensions Management. 

Suffolk Life itself only joined the Curtis Banks Group earlier in 2016, having been acquired from Legal & General.

What’s Going On With SIPP Providers?

First announced in November 2012 by the Financial Services Authority, SIPP providers will be required to increase the capital they hold in reserve, effective from 1 September 2016.  It enables the administration of your SIPP to continue in the event of the failure of your SIPP provider, while another SIPP provider is found to take over the running of the business.  It’s often referred to as capital adequacy.

In January 2016, to show how serious it takes this matter, the Financial Conduct Authority revealed it’s ready to wind up any SIPP providers that fail to meet the new capital adequacy requirements.  This could be really bad news for your SIPP.

The issue surrounds the formula that’s used to calculate how much cash SIPP providers must hold in their businesses.  It’s resulted in a significant increase for SIPP providers whose assets contain the greatest proportions of non-standard assets.  These include high interest property backed investments and the massively popular area of crowdfunding and peer-to-peer.

Hot on the heels of the mergers and acquisitions that have already happened, a host of other SIPP providers have said they expect further consolidations in the SIPP industry.  This is likely both in the run up to the new capital adequacy requirements coming into force and following them, as some SIPP providers will not have met their deadlines for increasing their cash levels.

Whilst all this activity might solve the capital adequacy issue, beware of the unintended consequences.  The biggest problem with any merger in any business sector is that bigger isn’t always better.  Service often suffers, and when it's something as important as your money, you should demand the highest level of service standards.

SIPP Providers Can Collapse

As you can see above, SIPP providers really can fail.  It’s a timely reminder as to why the rules have been changed – to protect you. 

As if that isn’t enough, figures just released from the Financial Ombudsman Service reveal that for the first quarter of 2016, complaints about SIPPs had the highest uphold rate of any product. 

The Financial Services Compensation Scheme recently reported a dramatic spike in claims relating to poor advice given on non-standard assets held within SIPPs, suggesting the trend is likely to continue.

During the 2015 to 2016 financial year, it paid out £83.8 million on life and pensions claims, 92 per cent of which related to non-standard SIPP assets, typically the ownership of unregulated offshore property such as hotels.  It was twice the 2014 to 2015 figure of £35.2 million, which itself was double the 2013 to 2014 figure.

What Should You Do About Your SIPP Provider?

That's simple. 

Click the four blue buttons above and read each of the articles.  Then, if you don't know the latest position with your SIPP provider, speak to them.

After all, it says SELF "on the SIPP Tin".

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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets

That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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