Capital requirements
Alongside Table 1, the FCA’s response to Money Management’s freedom of information request provides updated statistics on providers’ capital adequacy status. As of 31 December 2017, 11 firms continue to use both Tier 1 and Tier 2 capital to meet requirements – the same number previously disclosed by the FCA in the middle of last year.
But the number using Tier 2 capital, such as loans to meet 25 per cent or more of this requirement, has dropped back to five, having risen from two in September 2016 to seven as of last summer. Table 1 indicates just four firms using Tier 2 capital, but there remain a handful of non-disclosures, as well as firms who declined to take part in the survey.
Broadly speaking, businesses’ capital adequacy data remains as it was in the October 2017 survey, but some have seen their cover fall back slightly. Liberty Sipp now covers 105 per cent of its requirement, down from 125 per cent, while DP Pensions’ has fallen from 172 to 130 per cent.
On the other hand, Talbot and Muir has now covered 117 per cent of its requirement, up from 100 per cent, and Barnett Waddingham’s cover has risen from 112 to 123 per cent.
On the NSI front, property (of all stripes) continues to be predominantly classified as a standard asset – unsurprisingly, given UK commercial property remains a standard asset under FCA rules. But most providers do have certain commercial properties that they classify as NSIs, probably because they are not deemed capable of being transferred within 30 days. Table 6 gives details of the type of commercial property held on providers’ books. Most notable here is the significant reduction at Hornbuckle: the 3,200 properties in our previous survey have fallen to 2,500 this time around.
Table B has more details on commercial property, while Table C details providers' cash account policies. A broader assessment of NSIs can be found in the fourth column of Table 1. These figures, which include the likes of fixed-term deposits as per FCA rules, state the percentage of a provider’s Sipps that have exposure to NSIs. Most providers have seen these rates fall by a couple of percentage points, most likely indicating a more cautious attitude to NSIs in general, but there are exceptions. Michael J Field, Walker Crips and Westerby’s figures, for example, have each crept up by a couple points.
The ‘vetting process for esoteric’ column, meanwhile, indicates most providers continue to accept NSIs. Similarly, there is a degree of unanimity among full Sipp providers as to what constitutes either a standard or non-standard asset. But some providers are concerned about the treatment of impaired assets. Graham Muir, director at Talbot and Muir, says: “The bigger issue centres on the inconsistency, between operators, in the valuation of ‘impaired’ NSIs. Anecdotally, we hear of some providers down-valuing such assets to £1, whereas others are maintaining valuations at book cost or at last reported valuation.”
