Friday, 7 February 2014

Before the tremors: six vital questions to ask your SIPP provider

Investors with popular Self Invested Personal Pensions (SIPPS) are being warned of a seismic shock to the industry, which could lead to many providers increasing fees, selling up or even stopping trading altogether – so what can you do to prepare?

The FCA is expected to produce new guidelines for SIPP providers in the early part of 2014 that will lead to providers having to raise extra funds or get out of the market.

Watch out for higher fees, and providers who stop providing
Individuals with SIPPs will need to ask tough questions of their SIPP providers to find out whether they are about to be hit with a fee increase or face the prospect of a provider going out of business.

SIPP providers who have allowed non-standard assets, which include commercial property, into SIPPs are likely to be hardest hit – with the Financial Conduct Authority’s proposed capital adequacy rules undoubtedly thinning down the SIPP provider market.

So if you want to stay in control of your pension and know that your provider is going to continue trading, you must ask these crucial questions:

  1. Is your SIPP provider financially strong and reserving for the newly proposed FCA capital adequacy rules?
    There is no list currently of who can or can’t pass the test. Most providers will have undertaken a calculation and will know if they are at risk. You should ask your provider directly.
  2. Is your SIPP provider making a profit and can demonstrate consistent profitability over a number of years?
  3. Who actually owns your SIPP provider? Is it a private individual(s) or a large body corporate?
  4. How many SIPPs does your SIPP provider administer and what percentage of these are invested in non-standard investments (this includes commercial property)?
  5. What are your SIPP costs relative to the market?
    Customers with relatively simple SIPPS should check that they are not paying for features that they are not using and subsidising other pension scheme members that are higher risk.
  6. Does your SIPP provider offer a full range of retirement options (such as flexible drawdown)?

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