Fears are growing that investors in Self-Invested Personal Pensions (SIPPs) could see fees rise sharply following an increase in the cost of regulation.
All SIPP providers pay fees to the Financial Conduct Authority (FCA), as well as an annual levy to the Financial Services Compensation Scheme (FSCS), which “pays compensation if a firm is unable, or likely to be unable, to pay claims against it.”
Miss-selling and toxic investments
As anyone who has read our blogs over the past few years will know, the self-invested pension market has been beset by problems of miss-selling, toxic investments and poor advice. This has seen an increase in the number of complaints made by investors and consequently the amount paid out by the FSCS to investors.
As the level of compensation paid to investors has risen, so has the capital needed by the FSCS, which means an increase to the levy paid by SIPP providers.
In fact, one SIPP provider, Suffolk Life, has warned that total regulatory costs have jumped 75%, including a 150% rise since 2014 in the levy paid to the FSCS.
Commenting on the rises Greg Kingston, Head of Communications and Insight at Suffolk Life, said: “FSCS costs for SIPP operators have not come under scrutiny since 2011, when the then record interim levy drove some SIPP providers to consider interim and immediate one off charges to their investors.”
With such a large increase in regulatory costs there is bound to be nervousness that SIPP providers will increase fees paid by SIPP investors.
Greg Kingston again: “Our estimates show that SIPP operators will experience a rise in the FSCS fee by as much as 150% in 2015 and, should the level of FSCS protection available increase along with the volume of claims, these fees will continue to rise.”
The increase in regulatory capital which will hit most SIPP providers in 2016 is yet another reason to believe fees may well be set to increase.
What action should you take?
Firstly, don’t panic, there is no guarantee that SIPP fees will rise.
If you are thinking of taking out a new SIPP, or transferring your existing SIPP, find out more about the financials, particularly profitability and assets, of your new provider. The greater the financial strength of a SIPP provider, the less likely they are to put fees up.
If they will give you information about the increase to their regulatory costs, that would also be very useful. Whilst SIPP providers may not want to declare this sensitive data to individual investors, there’s no harm in asking!
If your SIPP provider does increase fees, you will inevitably want to look around the market to compare costs and see if a cheaper alternative can be found.
This is only natural, however you must ensure that you include the costs of transferring your SIPP, for example, exit penalties, new set up fees, the cost of advice and legal fees if you own a property, and not simply look at the difference in annual costs.
We’re here to help
If you are worried about the implications of an increase in your SIPP fees we are here to help.
Call Bev or Sarah today on 0115 933 8433, alternatively, email info@investmentsense.co.uk
