SIPP consolidation on hold as firms wait for cap ad rules

The expected consolidation of providers in the SIPP market is being held up by fears over increased capital adequacy requirements, a provider has said.

The cost of increased due diligence on investments and extra reporting requirements is pushing up costs for SIPP providers, Martin Tilley, sales director of Dentons said.

However, uncertainty over future capital adequacy requirements for SIPP operators is putting mergers of providers on hold, he said.

The Financial Services Authority (FSA) has already signalled its intention to increase the capital adequacy SIPP businesses must hold.

Currently, most SIPP operators must have enough capital to run the business for six weeks.

However at the last Henry Stewart SIPP conference Milton Cartwright, FSA manager of pensions investment policy, revealed plans to increase this.

A consultation document on capital adequacy is expected early next year.

Uncertainty over future capital requirements has led to difficulties with smaller firms attempting to sell up and exit the market now unable to find buyers, Tilley said.

"If capital adequacy requirements are to increase, firms on the borderline might be looking for an out, but acquirers do not know what they are letting themselves in for," said Tilley.

Tim Sargisson, managing director of James Hay Partnership, has said the falling value of SIPP firms caused by rising regulatory costs will mean smaller SIPP firms will be unable to sell up.

Last month, SIPP provider Pointon York removed itself from the market after having put itself up for sale for two months.

In October, a buyout deal between LV= and Hornbuckle Mitchell fell through after weeks of talks.