Valuing low-quality assets at £1 or similar may enable providers to lower their capital adequacy costs. This, again, underlines the importance of advisers doing their due diligence, and is an area to which Money Management will return in more detail in future editions of the survey.
Fully booked
Impaired assets lurking on back books are central to many of the issues in the Sipp market at present. This may be one reason why industry consolidation did not emerge to the extent that many had expected in the run-up to the introduction of capital adequacy rules in September 2016.
“While it feels inevitable that [impaired] assets will drive some further consolidation, the reality is that many Sipp books are polluted by potentially toxic assets to varying degrees, and I suspect we’ll need to see a few legal cases settle before buyers will step in,” says Jeff Steedman, head of Sipp/Ssas business development at Xafinity.
“There are books out there we’ve looked at and said are too risky,” adds Paul Tarran, chief financial officer of Curtis Banks.
It is true that consolidation remains at relatively low levels, but one notable transaction has been announced since the last survey. Dentons announced in February that it had agreed to acquire Sippchoice for an undisclosed sum, in the biggest deal in the sector since Embark’s acquisition of Rowanmoor in mid-2016. Having boosted their asset bases, it is no surprise that both Embark and Dentons have said they are considering floating on the stock exchange.
But it is recent headlines relating to Sippchoice that are perhaps the most consequential for the sector as a whole.
A first-tier tribunal ruling at the start of March ruled in favour of the firm in its challenge to HMRC’s denial of tax relief on in-specie Sipp contributions. HMRC had also asked firms to pay back reliefs on in-specie contributions as far back as the 2012-13 tax year, which meant many were facing hefty bills: Mattioli Woods said in its 2017 financial results it had set aside a £900,000 provision relating to the issue.
The initial tribunal ruling will come as a relief to the industry, which, as Table 4 states, has ceased offering in-specie transfers since HMRC first made its intentions known in 2016. “The ruling puts HMRC on the back foot,” says Curtis Banks chief executive Rupert Curtis.
Legal challenges
Other legal rulings may prove even more consequential for the sector. Berkeley Burke is being challenged in the courts by a group of investors over Sipp investments the claimants say were made by unauthorised introducers.
