Retirement life can be difficult for many people as they have to adjust to new realities. Planning for retirement is increasingly becoming important, and many people are putting in place provisions for a comfortable retirement. There are many ways that people can save for their retirement and contribute to their pension pot and make pension claims when the time comes. SIPPs is one of the options that have grown in popularity over the years. With over one million subscribers, the demand for SIPPs is not showing any signs of slowing. This article sheds more light on the issue and explains why peer-to-peer lending direct lending shouldn’t necessarily be frowned upon by SIPP providers.
Direct lending and peer-to-peer lending
One reason behind SIPPs’ popularity is that they facilitate investments across many investment opportunities, including peer-to-peer lending and direct lending. Since peer-to-peer lending and direct lending are considered a non-standard asset, many SIPP providers do not allow their clients to include them in their SIPPs. However, these two non-standard asset investment options may not be as high-risk as it has been widely publicised in the media.
FCA capital adequacy rules and spurious investments
FCA has in place tight capital adequacy rules requiring SIPP providers to categorise all asset types as standard and non-standard. The authority has even gone further to list what it considers standard assets, and any asset that does not appear on its list is regarded as non-standard. Generally, an asset is considered standard if it cannot be sold, realised, or valued within 30 days. There have been a few high-profile investment failures where SIPP clients lost part of their pension savings due to investing in non-standard assets. However, the non-standard assets in this context are often bogus investments such as overseas property developments, carbon credits, and store pods.
Safer non-standard assets
Non-standard investments have been promoted aggressively but resulted in little or no return of capital. Most SIPP providers have enhanced their due diligence processes and would not accept such kinds of assets. However, not all non-standard assets are high-risk. Peer-to-peer lending and direct lending have scaled the heights of respectability among non-standard assets. They have been widely endorsed as acceptable investments within SIPPs.
It is understandable that advisors are sometimes uneasy recommending non-standard assets in SIPPs. However, not all non-standard assets are bad. Non-standard assets are not necessarily spurious, and it may be more useful viewing them as respectable investments. Direct lending and peer-to-peer lending are just as respectable as standard assets.