The firm has published research which it says draws on an FSA newsletter issued immediately before Sipp regulation. This outlined the regulator’s concern about commission-driven Sipp sales and media reports claiming that some people who might be better suited to stakeholder products or personal pensions are being pushed into higher-charging Sipps.
The research indicates that Standard Life is charging more for its Sipp – at 1 per cent base annual charge compared with 0.7 per cent for its personal pension. It also suggests that the Sipp charges more than the personal pension at all levels up to £500,000.
Scottish Widows is charging 0.8 per cent for its new retirement account Sipp compared with 0.65 per cent for its regular-premium personal pension and 0.55 per cent for its single-premium personal pension.
Aegon charges 1 per cent for its Sipp against 0.7 per cent for its regular-premium personal pension and 0.6 per cent for its single-premium personal pension.
But ScotLife says it is very difficult to compare the Aegon products because of loyalty bonuses offered under the Sipp contract. This makes it difficult for advisers to know what is the best deal for the customer, particularly when they do not know how long the client will remain invested.
ScotLife says the base charges on its new Sipp and personal pension are identical, with investors paying more when they access wider investment choices.
It says more questions are raised over suitability by figures from HM Revenue & Customs showing that 96 per cent of policies are under £50,000 in size and industry research showing that less than 10 per cent of insurance company Sipps are invested outside the in-house mutual fund range.
It says only a small proportion of the market will ever need to use self-investment, which casts some doubt over the recent boom in Sipp sales.
Standard Life bears the brunt of much of ScotLife’s criticism as it has stressed on several occasions that its Sipp at entry level is just as cheap as a stakeholder or its personal pension.
Standard Life head of pensions policy John Lawson wrote in Money Marketing last month: “When you treat a Sipp like a stakeholder, it behaves just like a stakeholder and it costs roughly the same as a stakeholder. But when you want something more than you would get from a stakeholder, then you pay more.”
This is broadly the argument used by Aegon and Widows – that Sipp customers only pay for what they use and that their charging structures are entirely transparent.
But unlike Standard, Widows makes no bones about the fact that, for small funds, its Sipp is more expensive and says this is clearly outlined in its marketing literature.
ScotLife says Lawson has confused the comparison in charges by assuming a lower level of commission on Sipps. It says commission should be stripped away to enable a relevant comparison between Sipp and personal pension charges.
But Lawson says all that matters is what customers end up paying and that commission is irrelevant. He says even if Standard paid as much as 6.5 per cent up-front commission on its Sipp, its Sipp charges would be 2 per cent for the first six years and 1.2 per cent thereafter, compared with 1.5 per cent for the first 10 years and 1 per cent thereafter for stakeholder.
If it paid 1.6 per cent up front plus 0.5 per cent trail, the charges on its Sipp would be 1.5 per cent for the first six years and 1.2 per cent thereafter, again “broadly comparable” with stakeholder.
Lawson also rejects ScotLife’s claim about the vast majority of pension pots being worth less than £50,000 and inefficient to administer in a Sipp.
He says: “Ninety-six per cent of their business might be below £50,000 but I would guess that 96 per cent of our business is over £50,000 as our average Sipp fund is £169,000.”
ScotLife head of individual business Barry Shields believes Lawson is missing the point. He says stripping out commission makes comparisons between Sipp charges and stakeholders much more transparent.
He says: “On this basis, Standard’s Sipp is costing more than their previous flagship personal pension at all fund levels under £500,000. This is of particular concern when the personal pension product is still available.
“Even if it is not available, there is still a definite increase in cost for Sipp flexibility, which a provider would probably have difficulty in justifying if the client is not immediately investing outside the insured range.”
Shields concludes it is difficult for advisers to justify deferred Sipp sales where there is a cost to the consumer as insured funds can often be accessed more cheaply through another personal pension product.
Aegon says its Sipp can be offered on clean terms and replicate a mono-charge contract. Spokesman Mark Locke says: “Clients only pay for what they use. If they don’t access our Sipp, they don’t get charged for it. We have fully researched our target market and clearly define in our adviser and customer literature who we think Sipp is and is not appropriate for .”
Scottish Widows head of pensions offer development Peter Glancy agrees that Sipp charges are often opaque and says this is what Widows has tried to avoid with its tiered offering, which combines charges for advice, investments and admin.
He says: “Inevitably, when you add up all the charges on Sipps, they can be twice the level the customer thought they were paying.”