Platforms develop their own SIPPs
PEER-TO-PEER platforms are developing their own self-invested personal pension (SIPP) products, as mainstream SIPP providers tend to eschew the sector.
Crowdstacker and Folk2Folk have both told Peer-to-Peer Finance News that they are working on their own pension offering.
While P2P loans are technically allowed in SIPPs, connected parties rules stipulate that there must be no connection between the lender and borrower. This provides a challenge for SIPP providers if a P2P loan is allocated to a large number of borrowers.
“The connected parties rule has been tricky for SIPP platforms to negotiate, particularly if a P2P loan is spread amongst hundreds or even thousands of borrowers, and this is even more complex if it involves auto-allocation,” said Mark Bristow, co-founder of P2P platform Crowdstacker.
“Similarly, where some SIPP investments are relatively small, finding a cost-effective solution for lenders that sufficiently remunerates SIPP trustees for the work involved in terms of due diligence and processing, and the additional capital adequacy requirements, has proved difficult.”
There are also concerns that the P2P loans may go towards residential property, which is not permitted in a SIPP.
RateSetter, which is not planning to develop its own SIPP, has established partnerships with mainstream providers SippClub and London & Colonial. However, the platform admits the structure can be difficult for P2P investors.
“There is a considerable regulatory burden attached to the product, which can make the costs unwieldy if you do not have a reasonable pot to invest,” said a spokesperson.
Read more: Crowdstacker plans foray into pensions
One way around this is to invest in P2P-focused investment trusts, such as the Funding Circle SME Income Fund or P2P Global Investments, which can be held in a mainstream SIPP as shares. The rationale for mainstream SIPP providers is that this makes P2P less risky as it is clearer who owns the asset.
Danny Cox, head of communications at fund supermarket Hargreaves Lansdown, which is currently developing its own P2P platform, said that connected party rules made holding P2P loans in a SIPP too great a risk.
“Our SIPP doesn’t accommodate any P2P investments, other than the P2P investment trusts,” he said.
“Some SIPP providers are happy to accept this risk and holders are duty bound to check that there are no breaches of connected party rules.
“Demand from SIPP investors for P2P is relatively small, but growing fast.”