Secondly, the regulator now effectively controls what is and is not an allowable investment in a Sipp. The list of non-taxable property may still be the responsibility of HMRC but make no mistake, access to that list is very much controlled and regulated by the FCA.
When the regulator published its first consultation on new capital requirements in CP12/33 over three years ago, it estimated that between 14 per cent and 18 per cent of Sipp operators would choose to leave the market. Consolidation hasn’t yet happened to that extent, perhaps as the proposals have been relaxed, but the breadth of investment options available in the market has been significantly restricted.
Competition between full Sipp operators was supposed to drive that consolidation but instead they now find themselves increasingly being forced to compete with platforms. That’s a fight that no full Sipp operator would choose, and the likely outcome is the same via a different means: consolidation.
As recently as five years ago there were predictions that Sipps were going to take over the pension world. That’s not going to happen, not now that other pensions have been given the same rule book.
Back to basics
If this all sounds like a rather gloomy way to start the new year then think again. A full Sipp market growing on the back of excessive sales of unregulated esoteric investments was neither intended nor was it sustainable. Before it was discovered as a soft target for double-digit commission fuelled sales of overseas property ventures, the full Sipp market did some things rather well that first led to its popularity. Here are just two:
UK commercial property
After considerable debate UK commercial property has been classified as a standard asset by the FCA. That is good news for advisers and has prompted a huge sigh of relief from some Sipp operators. It means there will be more providers from which to choose.
Discounting faux properties, such as off-plan hotel rooms, equatorial plantations and land banks, there are probably between 12,000 and 15,000 commercial properties owned by Sipp investors. Although this appears to be a success story, Sipps are only scratching the surface of the potential of the UK commercial property market. This is a market where over 100,000 properties are transacted every year but in which Sipps only account for 1.5 per cent of them at best.
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The flat fee charging structure of most full Sipps means that only pension funds upwards of a reasonable size find their way in. By their very nature, larger pension funds not only tend to come with a wealthy investor together with their adviser but also with more complex problems.
