Pensions face a packed agenda of regulatory and legislative change over the next few years, including applying inheritance tax on unused funds, new disclosure rules and the Value for Money framework. The FCA has now consulted on a new set of proposals with potentially important implications for advisers, their clients and SIPP providers.
The FCA wants to strengthen consumer protection after finding weaknesses at some firms, including poor due diligence, weak controls over trustee bank accounts and patchy record keeping.
One key proposal is to tighten due diligence requirements for SIPP operators and third parties, such as discretionary investment managers. Many providers have already strengthened these checks in recent years. The risk is that these proposals, although well-intentioned, could add another layer of unnecessary prescription.
A second requirement is to introduce a CASS-like regime for SIPP operators – the Pension Scheme Money & Assets regime (PSMA). On the surface this makes sense. Clients should be assured their money is safe regardless of their route into pension saving, so making sure all firms are subject to the same high standards sounds like a ‘gimme’.
The FCA is proposing a whole host of controls, reporting requirements and rules for reconciling cash and assets held both directly by the SIPP trustee and indirectly by third parties. However, there is a danger that this is totally unnecessary. SIPP operators already undertake regular reconciliations of monies held within trustee bank accounts, and third parties appointed to hold SIPP money and assets – such as custodians – are already subject to FCA rules.
But the consequences could be serious. The FCA itself acknowledges that the proposals could drive some firms out of the SIPP market, leaving clients without a provider. And even if the rules had been introduced some time ago, there is doubt it would have stopped some rogue firms from acting the way they did.
This is a classic ‘sledgehammer to crack a nut’ response. Client security is a goal worth striving for, but there are other, better, ways to achieve the same outcome by focusing on those ‘bad actors’ without overloading SIPP firms with disproportionate new rules and cutting choice for clients.
While much of the debate focuses on CASS checks, reconciliations and technical compliance, the bigger issue is simple: good SIPP administration is highly specialised, increasingly complex and fundamental to delivering good client outcomes.
SIPPs have changed significantly since they were introduced more than 35 years ago. In the past, the market's reputation was damaged by high-risk investments and poor behaviour from a small minority of operators. That is no longer the market we see today. Stronger FCA oversight and the investment that providers have made in governance, systems and controls have transformed SIPPs into a secure and flexible retirement planning vehicle.
The growing regulatory burden highlights an important consideration for advisers. Choosing a SIPP is not simply about investment functionality or price.
It is about selecting a provider with the operational capability to manage increasingly demanding administration, the financial strength and governance to remain robust through further regulatory change, and the experience to protect clients' interests without compromising service.
As the pension landscape becomes ever more complex, advisers will want to partner with firms that have the scale, resilience and expertise to navigate that complexity, while continuing to put advisers and their clients first.
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