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When is a SIPP not a SIPP?

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23rd Jul 2018
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When is a SIPP not a SIPP? When it can only invest in a narrow range of regulated collectives.

Fantastic for the bigger players’ business models because it is very cheap to provide, involves virtually no human intervention, and no regulatory risk.

Which was why during the FCA review of the Self-Invested Personal Pension (SIPP) market, many voices from the high volume 'vanilla’ end of the market were calling for an outright ban on non-standard investments such as commercial property, investing in your own business, or anything in the unregulated space.

These would be influencers were not just being profoundly self-serving (since the non-standard SIPP providers tend to be the smaller specialist players who compete against bigger peers on flexibility of investment potential and service levels, not just price), but also short-sighted as a ban on non-standard assets just makes a SIPP a personal pension with a wide choice of funds.

So, it was a case of Hallelujah and credit where credit is due as the regulator resisted the siren call of a ban, pushed back at the established interests by recognising that the SI in SIPP, (self-invested) is a critical part of their appeal, and to do away with it would damage the market horribly.

Now, I appreciate that SIPPs may not have been a regular talking point between accountants and their clients, but I am increasingly seeing queries relating to client SIPPs on AccountingWEB (see most recent examples here and here), and with over 1.75m SIPP holders in the UK, this is becoming a major market where clients are looking for direction and advice.

SIPPs are popular precisely because people like the level of control that they offer, even if they don’t always use it for anything other than standard stuff, they like the fact that if they wish to, one day they could be doing something more direct with their pension assets.

This is now a £230bn value market, currently tipped to grow at £2bn or more per year, with over a quarter of a million SIPP holders already benefiting from full choice bespoke SIPPs. Take away that choice and, like ringing the bark on a tree, no matter how big that tree is you have condemned it to a slow and painful death.

There are, of course, problems with fraud and scams in the SIPP market, which was one of the driving forces behind the FCA review.

Equally there exist problems with fraud with bank accounts, dodgy door knocking builders and online Phishing. Are we to ban banks, roofs, and the internet? I think not, so why ban fully bespoke SIPP activity because of a tiny minority where better policing and due diligence on behalf of the provider would get rid of the problem anyway?

The best current guess is that maybe 10,000 of the 1.75m SIPP holders has some sort of problem asset on their books, although it is by no means certain that the value of all of these will go to zero.

That’s less than half a percent of the market, and that percentage is diminishing rapidly since most SIPP providers have upped their due diligence game and are no longer allowing crass get rich quick biofuel or overseas property developments onto their books.

Recent decisions by the ombudsman confirming that they, the providers, had a duty of care to undertake proper DD and could not hide behind the ‘advice’ given to the client by a third party certainly slammed that particular stable door shut.

Currently there is probably some £5-6bn invested (we think) in fully non-standard assets, overwhelmingly in either commercial property, often connected to the business of the SIPP owner, or in some sort of Pension-led funding arrangement, providing vital growth finance to the SIPP owners business.

Both are well established wealth creators that have served the SME and SIPP owning sector well, and the world of pensions and small business would be the poorer for losing this capability.

These reviews can sometimes serve as a means for big players in a particular sector to influence the rule book in order to stifle competition, something that is most definitely not in the interests of consumers or business owners.

So, strike one for the little guy as the often-maligned regulator has suddenly become the consumer champion.

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By SJH-ADVDIPMA
25th Jul 2018 12:01

Im 45, can I self invest in a McDonald's franchise using my pension savings then? I don't want to burger my retirement up though.

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