January 2008

Q&A

Designs for the future

Given the huge growth in SIPP sales post A-Day, what are your future growth expectations for the market?

We expect the market to continue to grow strongly and this is supported by surveys that suggest IFAs see SIPPs as a key product due to growing demand from clients. SIPPs have created a positive buzz of excitement and are not tainted by the negative press of other pension products. The market potential is huge because there is a SIPP suitable for almost everyone, from low cost services to specialist providers for clients with complex affairs.

Poor transfer times have been highlighted as a real issue for SIPP providers. How do you think this issue is being addressed?

Slow transfer times from providers - and advisers are well aware of the main culprits - have been an issue that has been going on for years and is still not being directly addressed. The current hope is that Treating Customers Fairly rules will encourage pension companies to improve their service levels and transfer times.

What lessons have you learned from the SIPP regulation process?

The key thing is that there continues to be a need for clarification on some important points such as capital adequacy requirements where rules have been cobbled together from other areas. The higher level of regulation and compliance does provide clients with more security, but the fact some smaller companies no longer found it cost-effective to provide SIPPs has probably reduced choice overall.

How much demand do you think there is for protected rights within a SIPP?

There is huge demand from clients who see the benefits of being able to hold their funds in a single place that offers a wide choice of investments. We were pleased with the Government's recent proposals to allow SIPPs to hold protected rights - although it should now make clear it intends to impose no investment restrictions - with a timetable for implementation by October 2008. Most clients really do not want the extra costs and complexity of being forced to have a smaller separate fund. Being able to combine the various pots, for example, makes income drawdown more cost effective.

Will regulation stunt innovation in this market?

I don't believe regulation will stunt innovation and certainly we are proving the point with the launch of our new FIPP (Flexible Income Pension Plan) which allows scheme pension within a SIPP framework. However, I would say that regulation tends to favour the larger, incumbent players and make it more difficult for smaller companies and new entrants.

What safeguards do advisers need to put in place to ensure that SIPPs are only sold to those who need them?

Advisers need to be clear about why the client could benefit from being in a SIPP compared to a personal or stakeholder pension. I suspect in most cases it is obvious why a SIPP is the compelling choice. Ultimately it comes down to balancing the potential extra costs against the need for the client to have more flexibility and a wider choice of investments, taking into account the client's age and the size of the pot. When looking at costs, very often for larger pots a fee-based SIPP works out to be far more cost effective than one charging percentage fees.

Given the huge growth in the deferred SIPP market, how will the role of the niche provider evolve over time?

Deferred SIPPS are "the emperor's new clothes" - they offer nothing more than a conventional personal pension but trade on the goodwill towards SIPPs. A low-cost SIPP could be a far more cost effective choice and allow more complex SIPP features at a later date if necessary. The niche providers are likely to see the fastest growth of all the SIPP operators because they are the ones advisers are most keen to deal with - a recent survey suggested Hornbuckle Mitchell along with AJ Bell and Suffolk Life were the top three choices. We have nothing to fear from the larger insurers, in fact quite the reverse because of our specialist knowledge and ability to compete effectively on cost grounds.

How will the Retail Distribution Review (RDR) affect the SIPP market?

A 'true' SIPP fits perfectly with the RDR remit because the client has to agree with the adviser the charges that will be taken, and can see them being taken from the SIPP bank account.

What challenges do advisers face in the current SIPP market and how can they deal with them?

Advisers are quite well served because of the huge choice available. The challenge is to make sure that the one selected has the investment choice and flexibility that the client needs. It is interesting to note that as some SIPP operators are growing they are actually limiting access to some of the more complex investment choices such as unlisted shares and in specie contributions. Where a client needs or may need full flexibility, advisers must ensure the SIPP is with an operator committed to allowing access to all the options.

ABOUT THE AUTHOR

Neil Marsh is managing director of Hornbuckle Mitchell.

Neil has worked in the financial services industry for over 24 years. Over the past 15 years, he has specialised in SSAS and SIPP issues. He frequently writes pension articles and his views on SSAS and SIPP issues are regularly quoted in the press.

ABOUT HORNBUCKLE MITCHELL

Established in 1982 Hornbuckle Mitchell is now a leading independent provider of trustee services to IFAs and other strategic business partners. The company's expertise covers all aspects of the self invested pensions market. With offices and consultants situated across the country the company offers local points of contact combined with the flexibility of choice and a high quality, dedicated, administration service. Hornbuckle Mitchell is a member of the Association of Member-Directed Pension Services.

Neil Marsh
Managing Director
Hornbuckle Mitchell