AJ Bell relabels property funds in Sipps after suspensions

Added 13th July 2016

Self-invested personal pension (Sipp) provider AJ Bell has confirmed that it has reclassified the commercial property funds, suspended in last week’s market turmoil, as non-standard assets under the Financial Conduct Authority’s (FCA) upcoming capital adequacy rules.

AJ Bell relabels property funds in Sipps after suspensions

The rules, due to come into force in September, state that commercial property can be classified as a standard asset only if it can be “realisable” or sold within 30 days.

Providers will also be required to set aside further funds, known as a capital surcharge, depending on the volume of non-standard assets.

Property fund suspensions

AJ Bell’s move comes after five of the largest property authorised investment funds (Paifs), among others, suspended trading during the first week in July in the wake of market volatility caused by the Brexit vote.

Standard Life Investment, Aviva and M&G all ceased trading on their respective funds due to an increase in redemption requests triggering share sales in property and asset management companies.

“We believe the decision by a number of investment firms to close the doors of their property funds means that, under the upcoming Sipp capital adequacy rules, they would need to be treated as non-standard assets,” said Mike Morrison, head of platform technical at AJ Bell.

"It remains to be seen whether the FCA will consider providing some dispensation for this given the extreme nature of the lead up to these fund suspensions and the significant pension assets invested in these types of Funds."

The firm was keen to reassure customers that the change would not lead to an increase in fees, as is usually the case with non-standard assets, revealing that the funds would become standard assets again once they resumed trading.

'Inevitable consequence'

Stewart Davies, group chief executive of Malta-based pensions specialist Momentum Pensions, told International Adviser he believes the temporary reclassification is an “inevitable consequence” of the FCA’s Non Standard Asset Regime, which agreed to group commercial property as standard assets in August 2014 after heavy lobbying from Sipp providers. 

He said the framework added “significant additional pressure on Sipp providers who should already be prepared for this new regime in September, but will now need to recalculate their capital requirements”.

Davies also urged the regulator to consider exempting the 30 day rule “given the extreme nature of the lead up to these fund suspensions and the significant pension assets invested in these types of funds.”

Momentum, which until recently exclusively provided offshore pensions in the form of qualifying recognised overseas pension schemes (Qrops) with offices in Malta, Gibraltar and the Isle of Man, launched its first Sipp aimed solely at the UK market last month.

Last July, Momentum increased its existing stake in Manchester-based Sipps provider Calderwood Pensions to 80% as the company sought to extend its product range and offer its expat clients the option of opening a FCA-regulated Sipp rather than a Qrops. 

Non-standard Sipps

Around 80% of Sipps are bought on-platform and consist of liquid ‘standard’ assets such as listed securities, gold bullion, unit trusts and exchange traded funds (ETFs) while the remaining specialist Sipps are bought off-platform from specialist boutique advisers and are made up of illiquid ‘non-standard’ assets such as intellectual property and unquoted shares.

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Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.

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