October 2007

Tailor making SIPPs

The SIPP market has enjoyed unprecedented growth over the past 18 months - where will it go from here?

I still think there are many elements of the SIPP market that can be developed. If you look at the industry estimate that the market is currently worth £35-40bn and you put it in the context of the insured individual pensions market which is somewhere around £250-300bn there's reason to believe that a significant part of that insured market will eventually find its way into SIPPs.

Also if we look in terms of the number of SIPPs currently out there you will see there's something like a quarter of a million SIPPs at the moment. I certainly stand by my estimate that there will be half a million SIPPs by 2010. I remain very bullish about the growth prospects in the market and don't see why it shouldn't continue to grow at the same rate as it has since A-Day over the next few years.

What is it about SIPPs that have caught the imagination of the general public?

How much of this is industry driven rather than consumer or investor driven I'm not really sure. I put it down to a couple of facts - the growing disillusionment with traditional type solutions means there is a real lack of confidence in traditional pension products. I think the Equitable Life debacle was a real catalyst for that. I also think the publicity generated around SIPPs in the run up to A-Day, particularly in relation to residential property undoubtedly increased awareness of SIPPs among the more financially aware consumers.

What will Suffolk Life's main focus be over the coming year?

We are interested in the protected rights marketplace and also we are changing the legal structure of our scheme to accommodate other investments that we haven't been able to deal with so far. Beyond that we are very conscious that our position in the market is at the top bespoke end and we know a lot of the growth in SIPPs in the future will come more from the fund supermarket type proposition. Clearly we are aware of that and we will look to see if we need to adapt our proposition in the future so we can be a bit more active in that particular marketplace.

How do you see the deferred SIPP market evolving? What kind of role do they play?

That's a difficult one and depends what we mean by a deferred SIPP. If we are talking of a personal pension dressed up as a SIPP then I think we will see that continue to grow as the traditional personal pension now has a limited lifetime. The real issue is perhaps more around pricing and how does a deferred SIPP compare with a traditional personal pension. If the wrapper comes at no extra cost then why not have one. I am very bullish about the prospects for the deferred SIPP. However, you have to ask if they are really a SIPP? Legally they are but in reality they aren't much more than a dressed up personal pension.

What evidence (if any) are you seeing of the expected consolidation that many providers expected post regulation?

To date there's not been huge evidence of this happening but I never subscribed to the view that this would happen overnight. The impact of regulation on providers and operators only really bites over a period of a couple of years. A lot of organisations won't have had a visit from the FSA yet so they don't know how well or badly they are performing. If we extend that to cover HMRC regulation there are a lot of reporting requirements introduced as part of the A-Day changes that only start to bite in the current or next tax year. I think it will be the next 12-18 months where the real impact of regulation will have an effect. We will start to see additional costs appearing and then we will start to see consolidation.

There will still be a place for the niche bespoke player going forward but there won't be anything like the number that there are there now. To have a viable profitable business long term you have to have a reasonable sized portfolio to justify all the costs associated with regulation.

What are the key questions advisers should be asking of their SIPP providers to ensure they are getting the best service possible?

When we talk about service one area advisers should ask about is regulation. They need to check that the provider has been regulated? Have they had a visit from the FSA? If so what was the result?

Management of information will also be an important area and advisers need to ask providers how many SIPP applications they are processing. What was the average turnaround time for each application? How many annual statements have you prepared?

The biggest area of all is the processing of transfers, both inwards and outwards because I think that's an area that many providers are falling short on and questions need to be asked. Another area is the conversion of the accumulated fund into income whether that be through an annuity or unsecured income.

Do you think that providers realise that they need to improve their transfer times?

There's a lot of talk but in terms of action I'm not totally convinced. There are companies who process transfers very efficiently but others fall well short. The concept of treating customers fairly is key here - why should customers wait months to move their money?

I think the concern is that with growing numbers of legacy books among life companies, as well as wound up occupational schemes the priority accorded to those with paid up benefits or products is not as high as it should be. The ABI has a code of conduct but I don't know of any evidence that shows if it has produced any real improvement. Eventually this issue will get a higher profile but I looked at the pension ombudsman's report and the second highest category of complaints was around transfers. It's just the tip of the iceberg.

John Moret
Director of Sales and Marketing
Suffolk Life