July 2007

TIPs taking off

Trustee investment plans (TIPs) have been used in the institutional marketplace for some time. Developed as a way of enabling pension scheme trustees to access insurance company products and funds, TIPs provided a cheap and simple way for trustees to access the best fund managers. The market has always shown modest, though not spectacular growth in the past. However, over the past year the humble TIP has undergone something of a makeover with new entrants such as The Hartford and MetLife launching TIPs into the retail marketplace.

Often coming with a guarantee, these products now allow SIPP and SSAS members to access leading fund manager expertise that will enable them to get the most from their retirement fund. The use of guarantees means there is no prospect of fund value decreasing below the amount initially invested.

So it would seem that TIPs are finally about to hit the mainstream. However, what do other TIP providers think about the new direction the products are taking?

"As far as we are concerned the TIP market is already a healthy market," says Bernard Henshall, head of investment distribution at Winterthur Life. "Pension scheme trustees have long been enthusiasts and I think it will be a good market for retail users as well. This is partly down to the fact that advisers want a good choice of quality funds for their retail investors and I don't see why they shouldn't have the same level of choice as institutional investors."

This level of enthusiasm is echoed by many in the adviser camp with Ian Price, divisional director, pensions at St James's Place keen to see how TIPs can be used in the retail space.

"The development of TIPs in the retail space will be very interesting," he says. "They will be used by SIPP and SSAS clients who are building up funds, and looking to expand the fund management that they've got available. Overall I think TIP is an important market for the UK and I think it will increase. For instance the client may have a commercial property in their portfolio and use a TIP to get the rental income on a monthly basis."

What do TIPs have to offer that other products cannot?

If TIPs have so much to offer the retail investor then why has it taken so long for them to move into this space? What do they have to offer that other products such as wrap accounts cannot? The answer is simple according to Mark Stopard, director, pensions products at The Hartford.

"There are two things really," he says. "The traditional reason is that it allows a way of getting access to funds that you can't access any other way. For customers who want access to our proposition through a SIPP or SSAS then the TIP is the only way to do it. The other way to use a TIP is if it allows you access to the underlying funds or assets that you wanted more cheaply."

Henshall agrees saying that TIPs provide retail investors with many advantages.

"If you are looking at wraps then they are focused largely on the world of mutual collective funds outside tax wrappers," he says. "TIPs are specific to the pensions world so they are a good way of accessing the quality fund management that you want within a pensions wrapper. That's the big advantage. They are also very simple to use and it's easy to change if you want to use a different fund manager or asset allocation strategy."

With free switching between funds a key feature of many TIP products it is easy to see their attractions. However, despite the benefits, careful consideration still needs to be given as to whether to choose a TIP or wrap product.

"There is an argument both for and against the use of TIPs in the retail market and you have to consider both options on a client specific basis," says Andrea Proctor, pensions consultant at Pearson Jones. "The charges can be lower with a TIP and these obviously differ depending on the TIP provider. Wraps may have initial charges, these and the annual management charges need to be considered when comparing options. Wrap accounts tend to give access to a large number of funds and it may be necessary to use several different TIPs to get the same kind of fund range," she says.

Increased functionality

However, according to Rosy Atal, head of communications at MetLife, today's retail TIPs offer functionality in addition to fund choice that make them stand apart from their wrap counterparts.

"The essential difference between TIPs and wraps is not to do with fund selection but more to do with what TIPs can offer in addition," she says. "For our part, at MetLife, that is access to the guarantee."

Stopard agrees, saying that the guarantee element is all important in the development of the TIP concept.

"I think the traditional benefits such as switching and cost will be catered for better by alternatives while on the other hand living benefits like our guarantee (guarantee retirement income plan - GRIP) will become more valued and people will increasingly access them through their SIPPs via a trustee investment plan. I would expect that GRIP and similar products will become more competitive and become a more mainstream part of the market with several if not the majority of providers competing in the market."

So it would seem that TIPs will be part of the retail market for the foreseeable future.

"I think TIPs will continue to be a healthy market," says Henshall. "The fact that advisers are used to a lot more choice when it comes to selecting funds means that TIPs are here to stay."

Helen Morrissey
Editor - Retirement Planner
Incisive Media