The regulation of Personal Pensions and SIPPs
I guess you already know, but in case you don’t I suppose you should be aware that the way Personal Pensions are regulated [and the important sub-set of Self-Invested Personal Pensions (aka SIPPs)] is about to change. I know that on the face of it that’s got “So what?” written all over it, but believe me it’s important.
I’ve touched on this before as I’m sure you’ll remember, especially at the end of 2005 when we witnessed that spectacular U-Turn by the tax guys on the proposed SIPP investments. The thing is the regulator, the Financial Services Authority (or FSA), has been planning for some time now to bring all forms of Personal Pensions within its scope. At the moment many aspects of SIPPs are not covered by the current FSA regulations.
This lack of complete regulatory coverage led many to say that the proposed A-Day changes to allowable SIPP investments were coming in too soon, in sort of cart before the horse style if you like, and that that could have led to investors losing out on the usual level of protection they should expect. For that reason many of us in the industry wouldn’t have been surprised to hear that the proposed changes to investments that could be held in Personal Pensions (particularly residential property in SIPPs) would be postponed until the regulatory ducks were all neatly lined up first. In the event, we were surprised that the widening-out of allowable investments was knocked on the head completely instead of merely being postponed, but I suppose that’s water under the bridge now and we’ll have to wait for further reforms to be planned before we can hope for anything so enlightened to crop up again.
It was never on the cards that the regulatory changes would come in much before 2007 and yesterday’s announcement by the FSA confirms that 6th April 2007 is the target date. They have also published a Consultation Paper on the regulation of Personal Pension schemes including SIPPs with a consultation period stretching out until 2nd July 2006 (which, coincidentally, is my Dad’s 80th birthday, but I’m sure that’s got nothing to do with it at all).
At the moment there are something like a hundred or so ‘SIPP Wrappers’1 available in the pension marketplace. A ‘wrapper’ is something I’ve always struggled to get my tiny mind around, but I think it can best be described as being the non-core stuff that can get tagged onto a bog-standard product like a Personal Pension. I know that’s probably a clumsy go at describing it, but believe me it’s the best I can do. The first time I heard the term ‘wrapper’ used it went right over my head, and I’ve heard it used in so many different contexts since that it’s stayed there; completely out of my reach.
The problem seems to be that the regulations we have at the moment are aimed at the way a Personal Pension within a ‘wrapper’ is promoted to people, but not at the ‘wrapper’ itself. (If that makes any sense to you, by the way, then I’ve completely exceeded my own expectations of being able to explain this.) So, after 6th April 2007 the whole range of what’s involved in investing in a SIPP, including all of the various investment options will come under a unified set of regulations.
If you’d like to read chapter and verse on all of this, or even get involved in the consultation, you can do so by clicking on this next link that’ll take you to a pdf of the Consultation Paper on the FSA’s website.
http://www.fsa.gov.uk/pubs/cp/cp06_05.pdf (136 pages)
4 April 2006
1. Consultation Paper 06/05 Newsletter
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