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Free lunch, anyone?

The Industry Soapbox

Ray Chinn Head of pensions LV=

The saying goes that there is no such thing as a free lunch so does the same apply to Sipps? Apparently not. As Sipps become the pension product of choice, we are now seeing the arrival of the “low-cost” Sipp, with the “free Sipp” probably not too far behind.

Having spent a few years in marketing roles, I understand the importance of “stand out” and can even live with a little spin but I am concerned that this preoccupation with making things cheap is devaluing Sipps.

Worse still, I believe that there is potential for these products to be misleading customers.

Not because they do not offer the widest possible investment choice so should not be classified as a Sipp but because they are making customers believe that running a Sipp is a simple business – so simple, in fact, that it can be achieved at very little cost.

The truth, if my own experience in the industry is anything to go by, is somewhat different. This is view is backed to a large extent by the recent FSA review of small Sipp operators.

In this review, the FSA were keen to express the need for Sipp operators to comply with high standards for core activities which are monitored and measured – including such areas as member account reconciliation, valuations, anti-money laundering compliance and business continuity among other things. All of this for next to no cost – I don’t think so!

Even allowing for technology efficiencies and economies of scale (ignoring the fact that many Sipp providers are sub scale), I still struggle with the concept of the low cost Sipp.

So, how are these products springing up? This is where the spin comes in. Far from being low-cost, these Sipps are using “kickbacks” from bank accounts or investment manager rebates to supplement their income and hoodwink the customer into thinking that you can run a Sipp for just north of two shillings and sixpence.

The sooner Sipp providers come clean about the true level of Sipp costs and stop hiding behind these other sources of income to cover costs, the better the outcomes will be for everyone.

True transparency over costs will help customers make better decisions over whether they are getting value for the services they are buying – whether these are admin services, investment management or advice.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. I strongly disagree with Ray. My company operates a ‘full-blooded’ SIPP, which reaches investments that low-cost SIPPs can’t, so I have no particular brief for low-cost SIPPs. However, the simple fact of the matter is that there are many people out there who don’t want or need our type of SIPP and for whom a low-cost SIPP is a very suitable product. I’ve even suggested this route to some of these people.

  2. I’m staggered at this fellow taking a stance against lower cost pension plans. Where is the loss to the client when they get both a low cost plan and a wide choice of funds to invest in. Certainly i agree with Hyman that there is a market for more sophisticated clients – or rather cleints with more sophisticated needs – such as buying commerical property and that these clients will have to pay reasonable fees for the privilege. However most clients want a simple low cost arrangement where a good choice of collective funds will be very much more than adequate to meet their needs – and yet a stap up from the very limited stakeholder selectiosn and eve ncommon persoanl pensions. as long as costs are clearly shown in the now mandatory illustrations and clients are aware that selecting non core funds- typically from an external fund group will cost more – but offer the potential of better returns too then great. We must also not overlook the rapidly increasing demand for access to PCLS without having to take an immediate income – a market as far as i am aware entirely occupied by SIPPs and in demand for sums as low as £50,000. We should not be ‘snobby’ about this and allow access to as amny as necessary – not restrict it to the fortunate few who want to trade shares, hold property and other even more adventurous investments. Cost is the only certainty when investing – lets keep them as low as possible and empower still more clients.

  3. Hyman and Ray, I think you both have good points although they appear to be opposing ones when the should not.
    My concern with the push for low cost SIPPs is that as the saying goes, “the bad working balems his tools” and a client using a SIPP may blame ALL SIPPs for their own inabilities to do well what a SIPP was designed to do, i.e. “self Invest”

  4. Richard S – I agree with the thrust of what you are saying, but if many people are using their pensions to take PCLS, but as many people then only use CORE funds, while some companies such as Std Life call it their SIPP & others like Scot Life and AEGON refer to them as Retirement Portfolio or Control, I think it better not to refer to a deferred SIPP as a SIPP, but a product with a SIPP option for if the client has the time and inclination to make purchasing choices. If we make the investment selcetion from them, it does to some extent make the name “self invested” a bit ironic…

  5. I think perhaps that there are far too many types of SIPP in the market place which will cause confusion for consumers.

    I have worked in the SIPP industry for 12 years and have seen a dramatic change in the popularity of schemes. It does concern me tho when IFA’s are advising their clients to transfer to a full SIPP with funds less than £20k.

    I would like to the PP providers perhaps making their contracts a bit more flexible. I believe that if, say, a Stakeholder provider allowed a greater diversity of funds to choose from, this would be a better option for many.

  6. David Trenner - Intelligent Pensions 6th November 2009 at 10:22 am

    If I were cynical I might ask Ray about the charges for the LV= (formerly Namulas) SIPP, but I totally agree with Hyman’s comments.

    For some clients the “investment only SIPP” is far better than an insured product, and can be cheaper to run. More to the point invoicing the plan for adviser fees is far more transparent than hiding adviser remuneration in convoluted charging structures designed by insurers!

  7. To clarify my comments to both Hyman and Richard, i do not have an issue with the keeping overall costs to a minimum – particularly where this attracts customers to make provision for the future. My issue is with products that purport to be what they are not – and risk devaluing the product completelty. The point of my article is that some SIPP providers are taking significant rebates from fund managers and the like to supplement their income. This means the SIPP looks incredibly cheap (a free lunch) and devalues the product, with the charges for investment being correspondingly overvalued. My call is for transparency – exactly who is getting paid what for doing what? While we continue to hide behind opaque structures how can we hope to restore customer trust in the services / products we offer?

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