A figure of £100bn already in PR funds is often quoted but there is a further £250bn-worth of potential PR in final-salary schemes that could technically find its way into Sipps if scheme members transferred out of their defined-benefit plans.
Nobody is suggesting that anything more than a fraction of this sum will do so, as the majority of final-salary scheme members will do well to stay put. Similarly, some contracted-out cash tied up in with-profits funds with market value reductions or contracts with guaranteed annuity rates will not move.
But however big a chunk of this mountain of cash makes the switch, it is going to have a significant impact compared with the £50bn or so currently sitting in Sipps. With so much at stake, we are likely to see competition between Sipp providers cranked up and pressure put on life offices as business walks out the door.
The key to victory in this battle for pension assets is winning the hearts and minds of the IFA community and the consumer. This is why pension minister Mike O’Brien’s announcement on PR has sparked such a volley of press commentary from providers with something to lose or gain from the change.
Scottish Widows has been quick to raise concerns that consumers could be transferred out of stakeholder or personal pensions into Sipps with higher charges. While noting that the way its Sipp was structured has allowed PR investment for over a year, it is urging the FSA, as part of its current review of transfers into personal pensions and Sipps, to bring disclosure standards for Sipps up to the same level that applies for insured personal pensions.
Comparing apples with apples is almost impossible with Sipps and personal pensions. Both can quote some funds that can be held cheaper by themselves than by their opponents but the FSA’s warning to advisers over transfers into Sipps from all sorts of pensions will doubtless govern the way IFAs approach contracted-out switches.
Standard Life has wasted no time sticking the boot into SSASs, saying they will not be able to hold contracted-out money and therefore questioning the logic for offering them to clients needing that functionality.
Once it has launched its variable annuity option, Standard will be looking to put the pressure on non-insured Sipp specialists such as Hargreaves Lansdown and AJ Bell, by endeavouring to differentiate it from these providers by virtue of its ability to offer an insured proposition of downside protection through its Sipp. Why go to a Sipp that will not be able to offer this option, it will argue, as you will only have to go through the cost and aggravation of moving to another Sipp provider when you might want to go for the third-way annuity option when it comes to decumulation.
Hargreaves is sceptical as to how widespread take-up of variable annuities will be and says it could introduce some form of derivative offering on to its platform. Presumably, if third-way annuities do take off as Standard is hoping, Hargreaves will push this matter further up its agenda.
The comments O’Brien made on announcing the rule change referred to Sipps’ ability to “give more flexibility and investment choice” and “consolidate pension rights in one place”, all of which sounded like a Governmental endorsement of the drift of assets into the product. That may not have been O’Brien’s intention but it does reflect the way Sipps have made it firmly into the mainstream and look set to continue to grow.
Life offices without a strong Sipp story could face challenging times on account of these changes and some may want to go down the Legal & General path and acquire their own, as that insurer has done with Suffolk Life. Virtually all big life offices now offer a Sipp but it is the service behind it that advisers value and which is why some providers attract more business than others.
Protected rights are going to be one of the dominant stories of the next six months. With so much money at stake, I expect the war of words to get dirty.
John Greenwood is editor of Corporate AdviserMoney Marketing