Whoops, we stirred up a hornet’s nest with our March article about SIPPS, which many of you thought was too gloomy about the possible impact of tighter rules on capital solvency
What you’ve been telling us is, essentially, that there are certainly a few black sheep around and that diligence and tighter control are justified. But that it’s still quite wrong to strike such a cautionary note as we did.
Some of you have also pointed out that there’s no need for clients with straightforward needs to enter into complex arrangements involving convoluted products. So, to that extent, some of the cautionary talk from the regulators and elsewhere falls wide of the mark.
So here we are, back this monthwith some contrasting opinions. And we want to hear your thoughts on the subject too. Write to us at email@example.com,or log into our website at www.ifamagazine.com, and we’ll do the rest.
Stewart Dick, Head of Sales at Hornbuckle Mitchell
There are very few financial products in the last 10 years that have captured the imagination of the public in the way that SIPPS have. Founded on principles of investor flexibility, choice, control and freedom, it’s hardly surprising that around 800,000 Britons have put billions of pounds into Sipp plans.
A significant milestone on the road to SIPPS’ pre-eminent position in the adviser’s retirement planning toolbox was 2006’s A-Day changes, which revolutionised the way contributions could be made. A-Day also removed the requirement for those in occupational schemes who wanted to make extra payments into a pension to do so into Additional Voluntary Contribution schemes, opening SIPPS up to even more investors. But while regulatory changes have made it possible for more people to save more of their money in SIPPS, it is the almost bewildering level of choice that SIPPS offer that has been at the heart of their growth.
Before the Sipp revolution, individuals in mainstream personal pensions had been stuck with a limited choice of in-house life office managed funds or a pre-defined list of external funds. Suddenly, SIPPS offered access to a massive range of asset classes and investments. And not just to thousands of investment funds, gilts, land, investment trusts and other asset classes. SIPPS can also be used to hold and trade shares, benefiting from tax relief on contributions and with no CGT on profits.
Owner-managers can use Sipp vehicles to buy their business premises, for instance, employing borrowed money to fund acquisitions and then paying rent into their pension. Many small business owners find that the thought of paying rent into your own pension has massive appeal.
But SIPPS’ benefits are not just limited to the accumulation phase. Whereas regular personal pensions typically direct their investors toward converting their entire pot into an income on a single day, regardless of how poor the annuity rates were on that day, SIPPS have allowed investors to make the most of the increasingly flexible income drawdown rules – allowing individuals to draw their income in the way that makes the best financial sense to them, and making it easier to avoid the ‘cliff-edge of retirement’ in favour of a more phased approach.
For pension investors, SIPPS have taken the genie out of the bottle. Far from being a sector in crisis, SIPPS are for many investors the future of pension saving. Many of the negative headlines SIPPS have attracted have been as a result of their success. This has included providers attempting to market products as SIPPS when they are not really what the purist would describe as self-invested personal pensions. And there have been concerns over small, undercapitalised players looking to get onto the Sipp bandwagon.
These players may indeed have problems – but, as the UK pensions market continues its drift from DB to DC, and as tough markets force investors further afield in the quest for innovative investment propositions, it is hard not to envisage continued growth in true SIPPS.
Greg Kingston, Head of Marketing at Suffolk Life
There’s no doubting that the flexibility SIPPS can offer has resulted in a broad appeal to both financial advisers and direct investors. Considering the generally higher service levels, the greater flexibility in drawing out benefits, and the fact that they are probably the widest, most accessible investment choice of any tax wrapper in the market, it’s no wonder the market has grown at such an astonishing rate.
Naturally, that growth has brought a few challenges as more firms enter the market. The issue of whether SIPPS need to be better capitalised has been well-discussed this year, and it is widely accepted that the current requirements – maintaining just 6 weeks of expenses – would be insufficient to wind up a SIPP business containing many complex investments. More firms does mean more choice for advisers and investors – and that’s why, more than ever before, it is important to understand the nature of the SIPP provider that you’re dealing with.
It is of little use offering a wide choice of investments or flexibility if the SIPP provider’s own service is not up to scratch. Similarly, an increasing number of SIPP providers are having to answer awkward questions about their role in promoting acceptance of some well-publicised investments that have failed.
That isn’t good for the industry as a whole, and it is worse for the firms in question. Just as an insurer that fails to pay claims as expected will struggle to attract new business, it is inevitable that some advisers and investors will be put off from using a SIPP wrapper because of the bad news that sticks to some of them.
They shouldn’t be put off, for all the reasons already listed. The greater investment choice, the service, the enhanced flexibility and so forth mean that a SIPP is excellent choice for a retirement vehicle.
Advisers and investors for their part would do well to make sure that they select one that’s going to deliver on all their promises and still be there into their retirement. They’d be brave to choose a provider that values short term growth and any quality of business to deliver it, over a stronger, sustainable provider with a solid and proven reputation.
Andy Bowsher, Director of Self Invested Pensions at Xafinity SIPPs, with the right providers, have huge flexibility. And a SIPP is not a SIPP until it has ‘self investment’. That sounds all too obvious, I suppose, but it was getting forgotten.
Particularly since the recent regulatory interest in SIPPs, IFAs are telling us that if a Pension Provider is all that the client needs, then that’s exactly what the client gets.This simple situation is good news for the client, who gets what he needs. It’s good news for the SIPP industry, which doesn’t get tarred with the mis-selling brush. And it’s good news for the IFA, who wins the long-term trust of his client.
If you really want flexibility, for the reasons already outlined, there is no beating the SIPP. Except that sometimes the client’s circumstances will lead him instead toward the related Small Self-Administered Schemes (SSAS) – which are arguably even more flexible than SIPPs, perhaps involving loans back to the employer.
Yes, commercial property and land investments remain at the core of self investment here. We continue to see this area grow. Where else can a client buy into an asset that he quite often personally knows, literally, inside and out?
With this choice and complexity comes the greater need for advice. IFAs are central to continuing the success of the SIPP, and to perhaps a lesser extent vice versa. The IFA is not only uniquely positioned to really understand the needs of his clients: he is also vital in undertaking the Provider due diligence that is, by all accounts, becoming more and more central.
This is a complex area where providers like to tell their own story. All that is ‘big’ is not necessarily strong or indeed ‘well capitalised’. And all that is small is not expert or personal. The right model might well be a truly specialist provider with depth and personal service, which has the weight of a strong established business backing it into the future….but then, I would say that, wouldn’t I?
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