Will SSAS become the new favourite for risk-takers?

The FSA is cracking down on unsuitable investments in SIPPs, but SSAS could be the new target for unscrupulous salesmen.

In 2011 there was growing concern over the use of self-invested personal pensions (SIPPs) to push high risk investments onto unsuitable clients.

The Financial Services Authority (FSA) has taken action. The future for SIPPs will be one where providers must take more responsibility for the investments it permits in its schemes, have greater capital adequacy, and provide better information to clients.

It will become a costlier but safer business. But will this simply push the sale of high risk investments into small self-administered schemes (SSAS)?

The crackdown

The FSA has taken several steps to prevent the sale of risky investments to unsuitable consumers via SIPPs.

In February 2011, it proposed stricter rules on the disclosure of charges and predictions of investment performance within SIPPs, due to fears investors could not understand the literature.

In September, the regulator confirmed it was conducting a review of providers’ role in vetting investments and, late last year, launched a review of drawdown advice, tackling the problem of risky investments at the decummulation end of pension savings.

In response, the Association of Member Directed Pension Schemes (AMPS) said its members had increased their screening of investments over 2011, paying particular attention to unregulated collective investment schemes (UCIS).

Some providers began to decide on the clients’ or their IFAs’ behalf which investments were suitable.

In October, Curtis Banks published a list of investments which, although allowed by HMRC, it will disallow unless the client can prove the investor is suitable.

Costs

The regulator intends to dramatically increase the capital adequacy requirements on SIPP providers over the coming year.

SIPP providers expect the extra regulatory burden to crush smaller operators, and speculation on consolidation deals is constant.

Even well-known providers were on the lookout for cash. In 2011, Hornbuckle Mitchell attempted to attract an “investment partner” while Pointon York put itself up for sale.

Regulatory arbitrage

With SIPPs likely to become more difficult to run there is a risk of regulatory arbitrage between SIPPs and SSAS in terms of investment vetting, experts claim.

This is because SIPPs are regulated by the FSA but SSAS, as occupational schemes, are regulated by the Pensions Regulator (TPR) and HMRC, and so will not be subject to the FSA’s reforms.

John Moret, director of MoreToSIPPs, says: “This prompts a push for SSAS business from some SIPP providers, particularly those operating at the bespoke end of the market.”