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Wind in the sales

Standard’s Sipp is carrying a valuable cargo but is it a sustainable trade?

It was not that long ago that Standard Life chief executive Trevor Matthews admitted that the group suffered a near death experience leading to the decision to float the company on the stockmarket.

Today, it is very much alive. Business is up by 31 per cent – well above market expectations – and you cannot blame it from preening over its debut year as a listed company. After all, the average individual shareholder has made more than a 50 per cent profit on their investment.

It is, of course, its progress in the self-invested personal pension market that has made a huge difference. I recall a seminar it held three years ago on the ramifications of A-Day. It was obvious to those present that the insurer was waving goodbye to the average Joe and aiming higher. Sipps would be the net to catch them with.

Not that it had much choice but to change its strategy. It had come under intense pressure from falling margins after the collapse of the with-profits market and the failure of stakeholder pensions to get off the ground. Sipps were the means of shoring up its position as one of Britain’s biggest pension providers.

It has been a wise move and getting in early has helped it become a market leader. To be fair, it produced an innovative product that ticked all the boxes in terms of access to a wide range of funds and investment opportunities, combined with good service.

Not only has Standard ditched its fuddy-duddy mutual image but it has breathed new life into its investment proposition. Personnel and culture changes over the past seven years have paid dividends and several of its funds have winged their way on to advisers’ buy lists.

Over the past year, 24 of its 30 unit trusts have delivered above-average performance, with no fewer than 14 in the first quartile. Over three years, 17 out of 22 have generated better than average performance, with 10 in the top quartile. Little wonder that it is attracting attention and sales have increased by 61 per cent.

But the legacy of its with-profits fund lingers on. Earlier this year, nine out of 10 customers were told their contracts were not on target to produce the nest eggs predicted when they signed up. Shortfalls have narrowed slightly, with the typical contract £2,800 shy of what is needed to repay a mortgage.

It may have just boasted that with-profits payouts have increased by 13 per cent but that masks past problems that stemmed from its severely reduced equity exposure in recent years. A 20-year-old policy may have grown in value from £80,763 last August to £91,097 today (including the inherited estate bonus) but if the policy had been taken out a year earlier it would have been worth £96,343 after 20 years.

Let us not forget that there are still problems with market value reductions. Many insurers have ditched them but Standard has stuck to its guns.

Many stockbrokers are certainly far from convinced that Standard Life has turned the corner completely. Some reckon the share price has been artificially inflated because shareholders held on for the bonus shares and some of its new business figures mask the fact that many pension policies have been recycled. “The general feel from the market is that Standard Life is a weak hold,” said one broker last month.

Sipp sales have certainly increased from a low base. Anecdotal evidence suggests that so-called new business figures are nothing of the sort. You have to wonder whether people really are pouring new money into their pensions at a time when confidence in the industry is still low and interest rates are rising, putting extra pressure on household expenditure. Survey after survey tells us that many people are not investing in pensions at all.

Competition in the Sipp market will only intensify and Standard’s proposition is not the cheapest on the block but it has stolen a march on competitors and has the foundations laid to cement its position at the top. It still has the brand, too.

When the half-year figures were announced, Matthews said Sipp sales have reached a tipping point.

The easy money has been made. The real test starts now.

Paul Farrow is money editor at the Sunday Telegraph


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