LONDON (Reuters) - The minimum capital requirement for insurers selling popular self-invested pensions should rise fourfold to cover the cost of winding the firms down if they fail, the financial regulator said.
The minimum capital level would rise to 20,000 pounds ($31,900) from 5,000 pounds, and companies holding assets that can’t be sold quickly would have to keep extra cash in reserve, under proposals unveiled Thursday by the Financial Services Authority.
The stricter requirements come in response to the growing popularity of self-invested personal pensions (SIPPs), retirement plans that allow consumers to choose what assets their pension pot is invested in, the FSA said.
“These proposals reflect the volume, range and complexity of assets now being put into SIPPS and ultimately will protect investors better in the unfortunate event an operator is wound down,” said David Geale, the FSA’s head of investment policy.
Some SIPP operators have collapsed and others have come close to failure since the FSA began regulating the sector in 2007, posing “a significant risk of consumer detriment,” the FSA added.
The proposed change would raise the industry’s overall capital requirement by up to 54 million pounds, and up to 18 percent of Britain’s 75 SIPP operators may choose to quit the market rather than comply, the regulator estimated.
Leading SIPP providers include Standard Life SL.L, Britain’s fifth-biggest insurer.
($1 = 0.6276 British pounds)
Reporting by Myles Neligan; Editing by Helen Massy-Beresford