June 2007

Are you 'switched on' to self investment options?

Dear Editor,

Steve Harvey's letter (Retirement Planner, May) made some very pertinent points about the "new" SIPP market and the potential for "mis-buying".

There are two further points I would like to add. Firstly, the apparently huge growth in SIPP new business has been largely fuelled by the re-labelling by many life companies of their personal pension plans as SIPPs. In the past, these have generally been known as "deferred SIPPs" - in other words, personal pension plans which invest only in the life company's insured fund range but which can have the self investment option switched on, at an extra charge, if the policyholder requires this at some later date. Now they are often called just "SIPPs".

The second point is to emphasise that this change in terminology is more than just an issue of semantics.

Several life companies offer these "SIPPs" as well as having a "plain" personal pension plan, which has a less expensive charging structure.

This could easily lead IFAs into dangerous territory.

The FSA has on several occasions (most recently in their March Life Insurance Newsletter) highlighted an issue that concerns them - that some people have been recommended to invest in a "SIPP" when a personal pension or a stakeholder plan would have been just as suitable, at a lower cost.

So if an IFA is advising a client to invest in a SIPP, with only insured funds being used, they had better ensure that the provider doesn't have a less expensive option available - or be prepared for some awkward questions from the regulator!

Alasdair Buchanan
Group Head of Communications
Scottish Life