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Sipps – suit you, sir??

It seems that you can pick up any trade paper just at the moment and self-invested personal pensions will be on or near the front page.

A far cry from the early days shortly after the Sipp was conceived by Nigel Lawson in 1989 when few advisers or providers had any time for this unwanted offspring of the personal pension. There seemed to be much bigger pickings with the traditional model.

I recently unearthed an article published in Pensions Management written in July 1994, endearingly entitled “Personal pensions get the bum’s rush” – which looked at the outlook for personal pensions following the transfer debacle in the early 1990s. I was drawn to a table which listed the total number of personal pensions in force by provider at the end of 1993. This is the top 10:

Standard Life
1.135million

Pearl
0.934million

Allied Dunbar
0.782million

Norwich Union
0.575million

Scottish Amicable
0.513million

NPI 0.425million

Scottish Widows
0.354million

Royal Life
0.324million

Abbey Life
0.291million

Black Horse
0.191million

Over five million policyholders spread across just 10 providers – the total for the 40 companies listed exceeded 7.5 million – and just three of the top 10 providers are still open for business. At the time, there were probably 5,000 Sipps at most. How things have changed.

That set me thinking. Are all the recent warnings about the suitability of Sipps really justified? As illustrated in an excellent article in Money Marketing last year by Nick Bamford entitled, The conversion of Paul, the real attraction of Sipps is in consolidation – the ability to amalgamate and display all a client’s legacy and current pension investments under one wrapper.

The figures suggest there are an awful lot of clients with a vast number of orphan or “closed book” personal pension policies. Wrapping them into a Sipp provides the adviser with the justification to review all these policies and the client with the benefit in future of having just one pension to review.

The bigger life companies have responded more recently to the threat posed by Sipps in differing ways. Many have chosen to play in only parts of the value chain -accepting that administration and investment management are not core strengths. Others have decided to face the competition head-on with heavy investment in technology and product marketing.

Faced with this new post-simplification world, the FSA has chosen to regulate Sipps as packaged products – a logical step but one which may play into the life companies’ hands.

Whether you view Sipps as a product or more of a service a key ingredient of the success of the Sipp has been its adaptability and flexibility – features which do not always sit comfortably with the packaged product approach – and the bland product assessment tools that many advisers favour.

One of the other advantages that the early Sipp providers emphasised was the transparency brought about by the unbundling of the component parts of the personal pension – in comparison with the opaqueness of traditional products.

Some of the product pricing now prevalent with Sipps seems to have more in common with the old-style personal pensions than the fee-based menu approach which has served Sipps so well.

Transfers look set to continue to be a prime source of the funding of Sipps for the foreseeable future. That in itself is not a problem but incentives in the form of initial or indemnified commission look increas-ingly out of place and seem certain to come under the microscope as part of the retail review -and not before time.

In the meantime advisers need to look behind the marketing material and gauge just what benefits a particular proposition offers to the client over the long term.

The Sipp could and should become the retirement savings vehicle of choice for all individual pension savers as it can be tailored to meet lifestyle changes and varying levels of risk.

It is disappointing that parts of the industry seem determined to jeopardise this – allowing short-term need to override long-term benefit to the detriment of all.

John Moret is director of sales and marketing at Suffolk Life.

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