Pensioner savers with self-invested personal pensions (SiPPs) are about to have their investment choice limited by regulators.
The Financial Conduct Authority believes too many SiPP savers are putting their retirement cash into risky investments, so is moving to tighten up the rules.
The FCA is also looking at altering how much cash SiPP providers should set aside to set off against commercial property investment.
Many SiPP savers use the pension wrapper to hold business premises.
But the main changes on the way are expected to be a ban on some SiPP providers dabbling in risky investments like unregulated collective investment schemes (UCIS), unlisted shares and commercial property.
Specific problems
The move comes as some providers, like London and Colonial, are calling for the FCA and HMRC to publish lists of acceptable investments.
The FCA is reviewing the SiPP market to look at better protection for investors against risky investments.
The FCA has issued guidance to SiPP providers but still feels many smaller firms are failing to meet industry standards.
“One of the specific problems is the due diligence pension providers are carrying out before marketing the investment to clients or allowing them to include it in a SiPP,” said an FCA spokesman.
“We are asking a lot of firms to stop including some types of investments until their procedures meet the standards we require.”
The FCA has declined to comment about the likely outcome of the SiPP review.
Who is affected
Many industry insiders reckon the new FCA squeeze on SiPP investments will force a number of smaller providers out of the market either because they will not be able to meet capital adequacy requirements or because they do not have the resources to comply with expensive due diligence procedures.
Peter Smith, of trade body the Tax Incentivised Savings Association (TISA), said: “SiPP providers need to show the regulator that they have checks and balances in place to safeguard investor money. Some do this very well, while others do not. That’s what this FCA investigation is about.”
The FCA review will affect British expats investing in SiPPs, but will not change the investment options available through a Qualifying Recognised Overseas Pension Schemes (QROPS).
This is because SiPPs are regulated in the UK, but although QROPS are monitored for tax purposes by HM Revenue & Customs (HMRC), the pensions are regulated in the financial centre were they are based.
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