In 1999, Suffolk Life director John Moret made a bold prediction that there would be half a million self-invested personal pension holders in the UK within 10 years, then a 10-fold inc-rease. He was wrong but only just. By 2009, the market would exceed his expectation and over the decade would become one of the mainstays of UK personal pensions.
Last month heralded the unofficial 20th anniversary of the establishment of the first UK Sipp and Moret, who has often been given the moniker “Mr Sipp” after two decades in the business, is not surprised by the widespread popularity of the product.
He says: “For me, what the Sipp is still all about is the ability to consolidate, to have a one-stop view of the vast majority of your pension entitlements in one pot. This makes life a whole lot easier for advisers and investors. That’s what I saw in 1990. Rather than the investment decisions being made by an anonymous life company, it was your opportunity to take control of where you invest.”
Moret was at Provident Life in 1989 when then Chancellor Nigel Lawson announced wider invest-ments would available to personal pensions. He says while the HM Revenue & Customs memorandum was sparse compared with the extensive literature published by the FSA today, it was enough to begin building a Sipp.
He says the proto-Sipp providers were also aided by his first employer Sun Life, which had led the way in attaching private fund options onto the forerunner of the personal pension, retirement annuity contracts.
There are no reporting requirements for any benefits or payments made to Qnups members, as there are with Qrops, whether this is within complete tax years of the member’s overseas residency or not
“There was already some experience of creating an individual fund for a particular pension investor. In a way, all the Sipp did was take it into the new personal pensions framework and provide the legal framework to allow you to do it.”
Moret’s firm launched its Sipp in June 1990, two months after the first UK Sipp (exactly who did this and when is a point for debate, says Moret) but for him it was not until 1995 that the market really took off. His firm, which had since become Winterthur Life, had been a part of helping create the architecture for income drawdown, which Moret says put Sipps in a fortunate position to grow rapidly.
“Income drawdown was something I was heavily involved in. In 1993 and 1994, we orchestrated a campaign where 1,000 advisers lobbied their MPs for change, and we got that change. Various pundits and the regulator took the view that if you were going into income drawdown it was all about investment flexibility and attitude to risk and Sipp was the wrapper for maximum investment flexibility – in a way, income drawdown was the endorsement that the Sipp market needed.”
Moret says Sipps were fortunately placed again in the late nineties as their “antithesis”, the inflexible Equitable Life pensions, began to crumble. He says: “If you thought that Equitable Life closed architecture model was dated, then Sipp was the obvious place where things were going.”
It was then that Mr Sipp made his prediction of 500,000 Sipps in a decade. At the time there were around 50,000 Sipp investors in the UK but Moret was confident that the time was right for Sipps.
“You could see from drawdown sales there was opportunity there and when you looked at how much money there was in the legacy market, then you didn’t need to be too clever to see that even if Sipps took 20 per cent of the market then that would be £70bn or £80bn of business before too long.”
But he underestimated the market. From his own “surveys of surveys”, he reckons that there are now around 600,000 Sipps in the UK worth £75bn. One reason for his undershoot may be due to the meteoric rise of the wrap platform in financial services over the last 10 years. “You could say that Sipps were almost the forerunner of the platform, in terms of wraps certainly, but obviously it has gone well beyond that.”
As well as the growth of technology, Moret thinks Sipps also benefited hugely from regulatory changes over the decade and says: “A-Day offered the biggest boost of all. Before A-Day, everyone was talking about residential property in Sipps and all of a sudden everyone wanted one, then, after A-Day, everyone was attracted to Sipps because of the advantages of higher contributions.”
But ironically it is regulation that Moret thinks is the biggest drag on future growth. He says the Government’s refusal to scrap the requirement to buy an annuity at age 75 has hindered Sipp growth but hopes a reversal on the rule will help cement the future for the Sipp market.
“I think the age 75 rule will go and I think when that does go you have the prospect of people having pension assets for 30 years. With the annuity markets, the way that they are at the moment and capacity very limited with low rates, I think options around drawdown will continue to be attractive and that will mean the Sipp concept will survive.”
My gut feeling is the direct technology market is going to be a growing market
He also wants to see more dialogue from the regulator with regard to pension transfers. Moret admits that much of the Sipp business of the last few years has been fuelled by transfers and will continue to be as long as the regulator does not tie advisers’ hands.
“Transfers still make up the bulk of the Sipp market. If we get the change in higher-rate relief, and with the new Isa £10,200 limit, new money going into the pensions market is in decline and it will continue to be in decline. Sipps will therefore be a consolidation vehicle, a recycling of money if you like.
“There is still £400bn or £500bn swimming around insurance company funds but the FSA is making it difficult for advisers to make transfers. The focus on costs is understandable but if you go back to the nineties there was a huge debate around costs as opposed to investment performance and that never got played out.
“It is easy to come in and criticise costs because they are transparent but the issues surrounding investment performance is very difficult. If there is a push too far on investment performance, then we may get a paralysis in the transfer market and I think that will be bad news because we have a lot of dogs in these legacy funds – we might get a backlash in five years as a result with lots of people asking why they weren’t advised to transfer.”
Despite his regulatory concerns, Moret thinks the Sipp market will grow to one million holders by 2015 and this time he thinks technology will play a central role in their development.
“Sipps and platforms are on a converging path. From a provider perspective, unless you are going to remain a niche player you have to offer platform access if you are going to be a serious player in individual Sipps.
“I think if Nest does happen, it will have a big influence on Sipp technology because pensions will then be technology driven and people will begin to expect to be able to go online and see what they have paid and what their assets are worth.”
He says this move will also drive consolidation in the Sipp sector. Moret says there could be as many as 120 Sipp providers in the UK but regulation and technology will reduce that number to less than 40 within five years. He also says technology will drive execution-only Sipp business.
Moret says: “My gut feeling is that the direct technology market is going to be a growing market so expect to see more of the Hargreaves Lansdown model. Whether it is healthy can be debated but undoubtedly there are growing numbers of people who think they can run their pensions as well as anyone else.”
That is not to say advisers will miss out on these 250,000 directly executed Sipps. Moret points to Informed Choice’s execution-only Sipp website, Brilliantwithmoney.co.uk, as an example of how advisers could take advantage of a web-driven Sipp market.
“We’ll see more instances where the adviser is happy to do the initial investment review or annual rev-iews but then allows the investor in-between times to run the portfolio. And Sipps fit into this, this is where technology and platforms will make a difference,” he says.
Moret is clearly passionate about Sipps and shows no sign of losing belief in the product he helped to mould over the last two decades. He says: “In a way, the ’self-invested’ personal pension is a misnomer because for the majority of people they do not manage the investment themselves but whatever you want to call it, the ability to have wider-ranging investments and to move up and down will be seen more and more.
“So any decent adviser now cannot ignore Sipps. You have even had Sipps on the front page of the Financial Times. They are now firmly in the adviser market place and are certainly one of the range of products they need to take into account.”
2004-present: director of marketing, Suffolk Life, producer of 14,000 Sipps with £3bn under management.
2000-04: managing director and then executive chairman, Personal Pension Management, the producers of the first Sipp.
1986-99: director of sales and marketing at Provident Life, then Winterthur Life, one of the first Sipp providers and leaders in the development of drawdown.
1970-83: actuarial trainee, Sun Life, producers of private fund options for retirement annuity contracts, the forerunner of the modern Sipp.
Mr Sipp’s predictions
- In 1999, Moret predicted there would be 500,000 Sipps under management in the UK by 2009, which earned him the name Mr Sipp. Eleven years on, Moret now predicts:
- The UK Sipp market will grow to 1,000,000 Sipps under management by 2015
- The number of UK Sipp providers will reduce by two-thirds by 2015, from around 120 to less than 40
- In five years, one quarter of UK Sipps – 250,000 products – will have been sourced by the investors through execution-only providers
- Over the coming years, the market will be split by the huge majority of providers offering Sipps through platforms while a small minority of niche providers will offer more esoteric investments more traditionally
- Many of the bigger Nests, amassed after several decades, will be able to and will want to move their pots from the Government trustee to a Sipp