Head to head: Has the Sipp market plateaued?
Will 2012 see the end of the Sipp boom, as IFAs turn to SSASs to better meet their clients’ needs? Hornbuckle Mitchell’s David White and The Whitehall Group’s Richard Mattison go head to head.
The rapid growth of the Sipp market over the past few years is testament to just how popular this form of pension plan has become among pension investors and it shows little sign of abating.
The clue is in the name - self-invested personal person.
Unlike traditional pension structures, Sipps provide pension investors with greater control and flexibility over their investments and are thus appealing to anyone with the confidence to manage their own affairs.
In turn, it promises to provide a wealth of exciting investment choices ranging from commercial property to deposit funds, making it the perfect option for those who desire a broader pallet of investments compared with the traditional personal pension.
In the wake of the recession, many investors have been left feeling disillusioned by the underperformance of the equity and bond markets and we are seeing a rising number looking to explore the realms of more unusual investments which the Sipp offers in abundance.
’Investors have been left feeling disillusioned by the equity and bond markets and we are seeing a rising number looking to explore the realms of more unusual investments’
It is this flexibility and freedom that make Sipps a cost-effective option for individuals with large pension funds seeking to take a more active role in the way their hard-earned money is handled.
Just like personal pension plans provided by life insurance companies, the Sipp also benefits from considerable tax concessions.
As well as receiving up to 40 per cent income tax relief on contributions, individuals are given the freedom to take a tax-free lump sum of up to 25 per cent at retirement age.
Plainly speaking, it is clear to see why the shift from traditional pension structures to Sipps has boomed over recent years.
Unfortunately, the same cannot be said for SSAS, which has long lived in the shadow of its thriving sibling. Despite the pair sharing many of the same traits, their growth has developed at a considerably different speed.
There are undeniably many advantages to using a SSAS but it has typically been the preserve of shareholding directors of a private company, where there is a family tie between the members and it has so far been reluctant to break out of this box.
Although its position is still very valid within the pension market, SSAS will never be viewed as a mainstream product and will not grow at the same speed as the Sipp market has done despite recent protestations to the contrary.
In my opinion, the Sipp market has plateaued. The quasi-Sipps which are basically personal pensions linked into platforms such as Sippcentre will continue to grow. However, the traditional Sipps that can access all asset classes are seeing less growth.
One reason for this is that the FSA has clamped down on the amount of flexibility these products are allowed. The other reason is that everybody who wanted one of these Sipps has got one.
SSASs are bouncing back because a SSAS can do everything a Sipp can - plus more. It can loan back to sponsoring companies, it can buy shares in sponsoring companies and you can do pooling for property purchases. It is also much more flexible in terms of succession planning.
SSASs are really good vehicles for allowing the pension fund to invest in the client’s business. The economy is in a state now where people would like to get money into their companies and you cannot do this with a Sipp.
The economy is in a state now where people would like to get money into their companies and you cannot do this with a Sipp
What I think we are going to start to see is a return to the way things were in the mid-Nineties, where advisers were segmenting clients into self-employed and owner/director. The owners/ directors will go into SSAS and the self-employed will be put into Sipp, which makes perfect sense because that is the way these products are meant to work. I think we will see more advisers recommending SSAS, particularly with the RDR looming.
IFAs will be less driven by the nirvana of renewal-based commission on funds under management and they will become more driven by fee-based advice, which is one of the whole points behind the regulation.
What advisers will be doing is helping clients a lot more with creative planning, which a SSAS is ideal for.
Clients get their corporation tax relief on the money going in and they can use a SSAS in more innovative ways to get money back into their businesses. SSASs have more angles for creative tax planning, which I think advisers will do more and more of.
I am not saying that SSAS will replace Sipp but Sipp has plateaued and we are going to see an increase in the amount of SSAS business. SSASs are still specialist products for a specialist type of market but we are going to see them bouncing back.