Looking at these questions, you’d be forgiven for thinking that I’ve got my articles in a muddle; after all, readers of Retirement Planner are unlikely to never have heard of a self-invested personal pension (SIPP). However, I think it’s still a valid question, as things are changing all the time. What is thought of as a SIPP has changed significantly over the last few years – particularly since the pension freedoms. Not only does this affect who we might think of as a typical SIPP client, but it also has an effect on the data and statistics looking at the pensions market.
If asked what a ‘traditional’ SIPP entails, most people would either think of commercial property, or clients who desire a complex mix of unusual investments and portfolios. Or both. These are the fully bespoke products which aim to allow as much flexibility as is allowed within the pension rules. There is certainly still a strong market for these types of SIPPs among clients who require these bespoke solutions and less common investments.
At the other end of the scale, there’s now a raft of much more streamlined SIPP products. These have grown enormously in popularity since the pension freedoms; they tend to offer much less in the way of investment flexibility, have lower average fund values than other SIPPs, and appeal primarily to those looking to access the pension freedoms. These are the types of product which, in its Retirement Outcomes Review, the Financial Conduct Authority (FCA) termed ‘mass market SIPPs’. It’s probably fair to wonder if some of these products would have been marketed as SIPPs at all before the pension freedoms, when SIPPs became widely known as a type of pension which would allow you to make use of the new rules.
There is also a middle ground, which is far less commonly discussed. These products may not offer clients the full range of investment options found in many bespoke SIPPs, but still have flexibility built into their core. For example, these products may offer clients access to a range of discretionary accounts, with options to hold multiple accounts or switch between them without the upheaval of needing to transfer to a new product. In this way, future-proofing the pension ready for a client’s changing requirements becomes a form of flexibility in itself.
With many of these types of SIPP, the main variation is the investment options, meaning the products will still benefit from the same retirement options and flexibility offered by the provider for their fully bespoke options. The limelight may often be dominated by the traditional SIPPs and newer ‘mass market’ products, but these mid-market SIPPs can be hugely beneficial for clients who require a degree of flexibility without all of the additional options.
While a greater range of products is rarely a bad thing, the relatively rapid change in the way SIPPs are viewed and used can cause confusion. For example, recent FCA research found that 22% non-advised SIPP clients who had gone into drawdown in the last 3 years were predominantly invested in cash. This figure would seem particularly shocking if all the SIPPs in question were traditional products where you would expect clients to be aware of, and using, at least some of the options available in the product they have chosen.
However, the research goes on to show that 93% of the non-advised clients who had entered drawdown in the past year and were predominantly holding cash were with the same five ‘mass market’ SIPP providers. Additionally, of the 71 SIPP operators involved with that research, 53 had fewer than 10 non-advised clients in that position – 24 of whom had none at all. Such distinctions beyond headline figures are important to gain a better understanding of the SIPP market.
The bottom line, of course, is that there’s no single definition of a SIPP or a SIPP client. Both definitions are broadening as the range of products expands, and as always, it’s a case of matching the right individual to the right product.
Jessica List is pension technical manager at Curtis Banks