I started working with Sipps at the very beginning of their existence in 1989 when the then Chancellor introduced a measure to allow people to take more control over the management of their pension scheme, writes AJ Bell's Mike Morrison in his first blog for Sipps Professional.
The result of this was Joint Office Memorandum 101 from the Inland Revenue which set out the concept of self-direction and gave a brief explanation of some of the dos and don'ts.
The understanding of what was, and was not acceptable, grew by discussion and, to some extent, trial and error, eventually resulting in the 2001 paper Personal Pension Schemes (Restriction on Discretion to Approve) Permitted Investments regulations (SI 117/2001). These regulations gave us a list of permitted investments which pretty much became a 'definitive' list of investments. It comprised of:
• Stocks and shares listed or dealt in on an Inland Revenue-recognised stock exchange (including AIM but not OFEX)
• Futures and options, relating to stocks and shares, traded on a recognised futures exchange
• Depositary interests.
• Units in most authorised unit trusts
• Eligible shares within the meaning of section 638(11)
• Shares in an Open-Ended Investment Company
• Interests (however described) in most collective investment schemes
• Contracts or policies of insurance linked to insurance company-managed funds
• Traded endowment policies
• Deposits in any currency held in deposit accounts with any deposit-taker
• Freehold or leasehold interest in commercial property (including Land) where the interest is acquired from any person other than a member of the scheme or a person connected with him
This was a good starting point and investment requests could be referred to the list. Since A-day we have run a regime where broadly anything can be accepted but could be deemed taxable property and subject to a tax charge. The list was never a closed book, and if a particular new investment type became available it was possible to open discussion with the Inland Revenue and to seek acceptance. It was also not uncommon for investments to be amended such that they would fit into one of the permissible categories.
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Over the years I have been asked about all sorts of investments and their permissibility – a couple of the strangest immediately spring to mind. One adviser called me to ask if a 'snow machine' would be acceptable? Aside from not initially knowing what he was really talking about (it turned out that it was a machine for producing snow for an artificial ski slope), we could not fit this item into the definition of commercial property or as plant and machinery for a SSAS (after receiving a very detailed specification for said machine in the post at the office).
Another enquiry involved a portfolio of residential properties in Barbados! Just because something is on the permitted investments list does not necessarily mean that it will be acceptable in all Sipps, as each Sipp operator will have to decide the extent to which they accept and hold investments on the list. This, I think, is very much in line with the FCA view that Sipp operators must thoroughly understand their business, what the investment is and who it comes from.
In the announcement of the third thematic review into Sipp operators just a month or so ago, the FCA did not beat about the bush – and in their own words said: "We now expect all Sipp operators to demonstrate that they are meeting our requirements.
"Where Sipp operators are unable to demonstrate their compliance with regulatory responsibilities and fail to show they have the best interests of consumers at heart, those firms will be subject to further regulatory action. In 2012 we were not particularly impressed with the industry and there is a growing frustration that we are having to do this again. This is the third thematic review we have done into Sipp operators.
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"The bad practice we found in the 2012 review has not been properly cleaned up and there is a lingering concern that some firms are not looking after the interests of consumers. We expect Sipp operators to demonstrate they are meeting our requirements. If they are unable to show they are operating in the best interests of consumers we will be taking regulatory action."
A list of permitted investments would not solve every problem and I am sure there would still be incidences of potential fraud and even losses to the consumer from natural investment and business failure. Making sure that allowable investments were of a specifically regulated nature aligned with a capital adequacy regime could help our industry go some way towards addressing the regulator's concerns.
At the same time, we also need some work to consider and clarify the responsibilities of those with roles in the Sipp market. How much due diligence should be done by the adviser and/or the trustees? Sipps have been one of the few success stories in the pensions world; let's make sure we try and maintain this image.

Mike Morrison
Head of Platform Marketing
AJ Bell