Type: Group self-invested personal pension
Minimum group size: 10
Minimum investment: Lump sum £5,000, £100 a month, £1,200 a year each member
Minimum term: One year
Allocation rates: 95-100% depending on investment option and commission structure selected
Investment choice: Insured option – more than 280 insured funds from 40 fund management groups, 11 lifestyle funds, collective funds supermarket option – over 800 Oeics and unit trusts through Cofunds Self-Invested options subject to £25,000 being held in insured option excluding protected rights – option A – bespoke range of permitted investments. option B all permitted investments including commercial property
Options: Protected rights transfer, full income withdrawal, phased income withdrawal
Charges: Insured option – initial up to 5% depending on IFA commission, fund charges 0.2 per cent to 2.4 per cent a year, collective fund supermarket option annual £150, self-invested option A set-up fee £295, annual £200, self-invested option B set-up fee £295, annual £375
Commission: Subject to negotiation through menu options
Tel: 08452 101010
This group self-invested personal pension from Legal & General offers a range of options for companies with at least 10 employees.
Origen technical manager Bob Perkins says: “There is clearly a perception amongst product providers that to compete in the group money purchase market, they have to offer a Sipp facility within their group offering. Personally, I have some doubts as to whether in an area of the market that cries out for simplicity, a plan with such wide-ranging options for members is really what is wanted.”
Perkins concedes that the range of fund choices that can be used under this plan while the member is accumulating funds before stepping over into the full Sipp can be restricted. “But that then places some responsibility on the employer to ensure that all tastes are catered for and the right default options are selected,” he adds.
In Perkins’ view, advisers who are active in this market would do well to read the recently published report from the Pensions Institute – “Dealing with the Reluctant Investor”.
“Suitability apart, this is a very comprehensive plan. It offers a very wide range of options including the facility to take protected rights on an insured basis, for those for whom it is still deemed appropriate to contract out or for transfers in from other arrangements.” He points out that the investment options include 11 lifestyle profiles offering different investment choices and automatic switching periods. He also observes that the facility for using USP at retirement is available.
“The minimum requirement for members to make use of the Sipp option is £25,000, so for many, it could take some while before that potentially attractive option becomes available. One therefore might question whether this is a practical option or a means of hyping up what is undeniably a flexible plan,” says Perkins.
Looking at the target market, Perkins says: “The target size of employer is those with 10 joiners or more, where the employer is paying on average at least 5 per cent of the basic salary by way of contribution. It is important to note that each scheme is subject to “negotiation by scheme average” but for each member the minimum regular contribution per month is £100,” he says.
Discussing the charges, Perkins says: “With regard to plan charges, 100 per cent allocation rates apply where commission is on a funded basis. The allocation rate is between 95 and 100 per cent where commission is based upon contributions.”
There is an annual management charge, which is determined by the basis of the scheme and collected by unit encashment. Perkins also points out that the underlying fund management charges vary from 0.2 per cent to 2.4 per cent a year depending upon the funds selected and the loading for funded commission would be in addition to this.
“Overall, the plan is very comprehensive and includes the proverbial kitchen sink. Charges are lowest for those who are using the insured funds to accumulate, but the step up to wider options is well tiered and clearly priced. However, I doubt that most individual members will understand or need the degree of flexibility that is inherent in the plan,” says Perkins.
Addressing the less appealing features of the plan Perkins says: “I don’t know that there is much to dislike about the product itself, because the plan is well designed and explained. However, it might be argued that though Sipp appeals to many individuals and the market hype has increased the interest, it is of less relevance in the wider group market. “
Where advisers are able to carefully select a target market for the plan – for example, specific groups of individuals who are higher earners or those who appreciate and need the more sophisticated investment options – this plan may be worthy of consideration in Perkins’ view. “Advisers need to ask themselves just how important the kitchen sink is for their particular client,” says Perkins.
Scanning the market for possible competitors Perkins says: “There are already product providers actively promoting group Sipps, such as Standard Life. I would see these plans as offering the main competition.”
Perkins feels that it should be remembered that a group Sipp is generally just a cluster of individual contract based personal pensions brought together to have the appearance of a group pension scheme. “It is true that members can benefit from some economies of scale but by and large when it comes to Sipps, the individual’s objectives need to be considered,” he says.
For a large proportion of the Sipp market, where full investment flexibility is unlikely to be needed, Perkins thinks the L&G Personal Pension Plan wrapper, using the Cofunds platform, will cater for most requirements. “At the other edge of the spectrum, for those high net worth individuals with larger accumulated funds to invest a full Sipp offered by independent providers will provide a more bespoke service,” he says.
He says: “There is nothing wrong with Sipp as an aspiration and as long as there is no cost in having the deferred facility then there should be no harm in incorporating it on that basis. In situations where members might be paying additional charges for a facility that they may never use – which does not seem to be the case with L&G – the real need for that option has to be seriously considered.”
Perkins concludes: “For most group schemes perhaps a Sipp facility should come lower down on the “wish list” with advisers focussing on arguably features that might be of more immediate importance to members.”
Suitability to market: Good
Investment choice: Good
Adviser remuneration: Average