Capital Adequacy

On 1st September 2016 new FCA capital adequacy rules came into force affecting SIPP providers. Hartley Pensions Limited are in full compliance with these rules and are committed to maintaining capital headroom in excess of the regulatory minimum.

SIPP operators came into the scope of regulation in 2007. In consultations on how these firms should be capitalised, the regulator stated that some SIPP operators had closed to new business and were looking to transfer their book of pension schemes. It was apparent that some did not hold sufficient capital to do so in an orderly manner, especially when they include schemes which allow investment in non-standard assets which can be very difficult to sell or transfer to another provider.

The FCA have noted experience of SIPP operators trying to leave the market, having seen some enter administration where it proved extremely costly to transfer their  SIPP book to other providers, especially when they contain non-standard assets. This creates a significant risk that consumers can end up funding an administration out of their own pension assets. For these reasons, under their statutory responsibility for consumer protection, the FCA has introduced a new, more complex capital adequacy regime. Full details can be found here

As a brief summary, the new capital adequacy rules require firms to hold either 10, 15 or 25 times the square root of the value of assets under administration (depending on the amount of Assets under Administration). This is called the “Initial Capital Requirement” or ICR.

In addition to the ICR above, SIPP providers will have to hold a “Capital Surcharge” based on the percentage of schemes holding Non Standard Assets. The Capital Surcharge is calculated as 2.5 times the ICR, times the square root of the fraction of all its schemes holding Non Standard Assets.

Non Standard Assets are defined as anything that is not a Standard Asset. These include the usual sort of investments held by retail customers; for example – bank deposits, UK and overseas shares on a recognised exchange, investment trusts, UK regulated collective investment schemes, National Savings, gold bullion, and UK commercial property. Some examples of Non Standard Assets include: UCIS, overseas property, hedge funds, unquoted shares and anything else that is not on the published “Standard Assets” list.

Hartley Pensions Limited is proud to confirm that we are in compliance (and in excess of) the new capital adequacy requirements.