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Martin Tilley: Sipp complaint headlines do not paint the whole picture

It is important Sipps are not all tarred with the same brush

High-level publications have recently highlighted the dangers of generalisation and how one size does not fit all.

Analytics company Globaldata released an interesting report on UK Sipps earlier this month. Drawing on data from the Association of British Insurers, it concluded the Sipp market is flourishing, having grown by 55 per cent from 2016.

At the same time, however, the Financial Ombudsman Service’s 2017/18 annual review indicates a 37 per cent increase in Sipp complaints.

The recent increase in Sipp numbers is explained by consumers wishing to take advantage of the pension freedoms introduced in 2015 – and rightly so. Many approaching a drawdown date have accumulated funds in products designed in the 1980s or before, none of which would have included the features now available, so a switch to a modern product was always likely to happen.

Sipp market tipped to see £2bn growth each year

In fact, this had been occurring well before the freedoms, as the ability to avoid an annuity, often quoted as being introduced in 2015, was actually available to some from 2006.

Sipps are often the logical new choice for a decumulation product but what exactly is the Sipp market?

Many platform-based personal pensions are deemed Sipps but, in reality, they are packaged products providing access to regulated funds only. These are the Sipps which have seen the vast majority of the growth but not the Sipps that have triggered the complaints at the Ombudsman.

These complaints largely relate to “full Sipps” and centre around the non-standard assets they accepted. The two Sipp types should not be confused by the single designation Sipps, or at least greater explanation should be given.

Industry experts suggest there are currently over 1.75 million Sipps in existence. The Ombudsman’s report refers to an increase in complaints over successive annual periods from 1,493 to 2,051.

Malcolm McLean: Beware the gathering Sipp storm

Clearly, the increase is of concern and the individual cases will be independently reviewed by the Ombudsman. However, in the context of the total Sipp market, while worrying, it represents a small percentage.

Other headlines claim the pension freedoms have caused many retirees to withdraw their whole pension pots and are holding the proceeds in cash or investing them into Isas. However, those with liquid assets outside of their pensions have been ceasing or reducing drawdown, instead preferring to live off personal assets and reduce the size of their taxable estate.

Fortunately, the FCA’s consultation on drawdown pathways does recognise the distinction – at least partly. It suggests default pathways should prevent inappropriate cash deposit strategies, where consumers risk running out of money. It also acknowledges that these are less likely and possibly not necessary for those with larger funds and for those who do genuinely self-invest through non-standard assets.

The solutions put forward by the consultation are well meaning and aim to provide for better consumer outcomes. But the fact regulatory intervention is felt necessary is itself brought about because of a lack of financial education. Those that do not seek advice rely upon what they read in the headlines – which might not always be the best source on which to base important life decisions.

Martin Tilley is director of technical services at Dentons Pension Management

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Well said, and not just SIPP’s. The media these days have very little balance, if any. The only news reported being bad news, all to often hyped up out of all truth.

  2. I just wonder how many SIPPS just contain only OEICs. This is something that needs looking into. There is no need for a SIPP is the adviser is just using mainstream Unit Trusts and OEICS. You can just as easily use OM Collective Retirement account that has a pretty wide coverage and avoids the double charging under a SIPP. Indeed I have seen SIPPS with OM who use AJ Bell and gave nothing you couldn’t have in the CRA. Is this a rip off or what. The regulator – asleep as usual.

    OK if you can show some rather more esoteric OEICS that are not avaialable under OM CRA. But a SIPP with just UTs is a bit of a nonsense.

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