SIPP cancellation rule means investors could miss out on pensions performance

James Hay, the UK’s leading Self Invested Personal Pension (SIPP) provider, has warned that rule changes introduced on April 6th2007 could lead to investors missing out on pensions performance.

The new cancellation rules, introduced under the SIPP regulatory regime, require SIPP providers to reimburse investors the full amount they have invested in a SIPP if they cancel during the cancellation period of one month.

If the pension were fully invested, this would make the provider liable for any potential falls in the value of the pension if, for example, the stock market fell. Consequently, SIPP providers are forced to delay investing pensions until the cancellation period of one month has expired.

Shaun Sandiford, Director at James Hay said, “This is a potential issue, given that investors could miss out on investment performance in their SIPP. For example, if investors funds were not invested for the past month, they would have missed a 3.26 per cent rise in the FTSE 100 (1).

“However, there is a way around this. Investors can request that a SIPP provider invests their funds before the cancellation period expires – known as a waiver. However, investors must understand that they are waiving their right to cancel. If the stock market were to fall, then a SIPP investor’s portfolio may fall in this period too.

“We would advise that individuals consult their SIPP provider or investment adviser to check whether they will be affected, and how they can address this.”