SIPP Panel (March 2008) - Carrot and stick

The panel

Chairman: Stuart Bayliss, director, Annuity Direct
Bayliss is a director of Annuity Direct and other adviser services. Annuity Direct has been a major advocate of improvements in the open market option process, assisting in developing new products and e‑solutions for the whole market. Through his consultancy, The City Partnership, activities have included managing the development of Leeds (Halifax) Life and repackaging M&S Financial Services.

John Moret, director of sales and marketing, Suffolk Life
Moret is often referred to as “Mr SIPP”, having spent much of his working life promoting the advantages of SIPPs. He was the inaugural chairman of the SIPP Provider Group (now AMPS) and has worked closely with government and regulators on a range of issues, including the introduction of income drawdown and the regulatory framework for SIPPs.

Philip Hutchinson, head of corporate SIPP sales, Poiton York SIPP solutions
Hutchinson is head of corporate SIPP sales. Based in London, he is responsible for developing our next era of high-quality, innovative retirement planning solutions, designed to help organisations gain competitive advantage, for workplace pensions. Philip has over 20 years’ experience in a variety of general management roles, 13 of which were spent in human resources and change management consultancies. Over the last nine years he has specialised in reward, in particular, benefits strategy and flexible benefits.

Jonathan Watts-Lay , director, JPMorgan INVEST
A founding director of JPMorgan INVEST, Watts-Lay began his career at Nationwide Building Society and then spent over five years working for SHL Group plc. Prior to joining JPMorgan INVEST he was head of UK marketing at JPMorgan Asset Management.



BAYLISS: Some SIPP providers now accept protected rights. Where it is available, and clients have protected rights, is it a good enough reason to choose a SIPP provider above others?

MORET: Choosing any SIPP provider on the basis of one element of the product is hard to justify. Certainly it makes sense to take protected rights into account. Whether self investment is the right option for the protected rights will depend on several factors, including the size of the protected rights and the client’s personal situation. If self investment of protected rights can be justified – whether for a new investor or an existing SIPP investor – then advisers also need to consider whether they should act now or delay until more self-invested products are available. However given the uncertainty over whether the DWP proposals will be implemented in October 2008, the case for utilising a SIPP provider that can accept protected rights is a strong one.

HUTCHINSON: The reason for choosing a SIPP in the first place has to match the requirements of each individual client and their specific wealth creation objectives in relation to their retirement plans.
The nature of the SIPP framework enable individuals to consolidate and manage their pension investments and retirement plans more flexibly and effectively. Therefore, where an individual does have a protected rights element it may well make sense to bring it across to a SIPP. This is on the proviso their SIPP provider is able to take them in.
At Pointon York we are already seeing some quite weighty transfers coming across into our protected rights scheme. With the restrictions on investment choices expected to be lifted in October we can only see this as a growing market, so it would be sensible for individuals to choose a SIPP provider that could accommodate it now.

WATTS-LAY: The new ability for SIPP providers to include protected rights is certainly good news for providers and investors alike. For the investor who prefers to have their entire portfolio ‘under the same roof’ for ease of management, this naturally allows for a ‘one provider’ solution. Furthermore, this gives the experienced investor the ability to have greater control over this, perhaps substantial, element of their pension assets.
However, one feature alone is never enough to make any form of investment decision. The ability to manage protected rights may be an important factor but for most would never outweigh other aspects of the SIPP provider’s offering. For many, charges will be a factor; for others, the range of investments available, be it ‘full’ or ‘hybrid’. An increasingly important factor for employees of large organisations is whether the SIPP will accept ‘in-specie’ contributions from approved share schemes.
These factors are likely to outweigh protected rights.

BAYLISS: The FSA, in reviewing SIPP business, is clearly looking to establish what is genuine new business rather than pension transfer. With the SIPP proposition many would regard relatively high levels of transfer to be expected. Are we comfortable that the FSA will be happy with the balance of SIPP new business?

MORET: Historically, many SIPPs have been set up for consolidation reasons, i.e. so that investors have all their accumulated pension entitlements under one wrapper. Necessarily that may involve one or more transfers from existing plans. Justifying such transfers – and indeed others – is clearly important and will obviously be less straightforward in the case of occupational scheme transfers, especially transfers from defined benefit schemes. The FSA’s concerns appear to be far more around the suitability of advice where there has been an internal transfer from a traditional personal pension to a SIPP that has attracted some level of incentive or commission payment from the provider that could influence the suitability of the advice.

HUTCHINSON: It is easy to see that the FSA may be concerned about transfers from insured personal pensions to insured SIPPs if all the investment strategy is with the chosen insurance company funds.
Truly independent SIPP frameworks, such as Pointon York, that are established to use the open plan nature of the SIPP and flexibility of choice across asset classes and different investment houses are more likely to be looked on favourably by the FSA as the transparency of transfers are very high.

WATTS-LAY: FSA’s concern would rightly focus on whether or not investors were receiving appropriate advice or information so that they can make informed decisions. SIPPs have become more popular following pensions simplification but would not be suitable for all investors, particularly in respect of charging structures and the ability of individuals to manage their own investment strategies. Consequently, the decision to take out a SIPP whether as a new investment or to receive legacy business would be a higher focus.
However, it is natural that older experienced investors for whome a SIPP is appropriate may be looking to consolidate pension funds from different sources into their SIPP and therefore it follows that transfer activity may be high. The self-directed investment options are an obvious reason for such consolidation but possibly of higher prominence is the capability to create sufficiently high value investments such that the investor can take advantage of income drawdown possibilities not always open to them in their legacy or current pension arrangements. In particular, investors retiring from occupational DC schemes will not have such flexibility through those schemes, and transferring into a SIPP would give them this capability and is likely to be a growing trend. A higher level of transfer activity is therefore a natural response to the changing investment environment.

BAYLISS: Many SIPP investors have been enthusiastic about property over recent years. Are there any particular problems being experienced by SIPP providers, particularly at retirement, with regard to both direct and indirect property investment?

MORET: We have encountered no significant issues on direct property investment. As we don’t offer our own funds it is difficult to comment on indirect investment – although the existence of restrictions on disinvestment can affect trustee investment plans for example. For direct property investment it will also depend on whether the property is individually owned by the SIPP investor or is part of a syndicated property investment. With the latter, liquidity issues are likely to be less significant provided the syndicate has been established properly.

HUTCHINSON: Property continues to be a major interest for SIPP pension plan holders. Our experience to date, across our large client base, shows there is no evidence of problems nearing retirement whether the property is a direct or an indirect investment where there is appropriate planning in place in relation to the individual retirement plans.
Where individuals are approaching age 75 it is at this time that careful planning is essential and the pension providers need to ensure that appropriate time is given for the property holdings to be liquidated. Most providers will have specific requirements in this regard.

WATTS-LAY: The property climate is certainly making people think twice about this asset class being the ‘investment of the moment’. One can, of course, never argue against property as a suitable investment medium for the longer term as part of a properly balanced portfolio.
However, experience to date with SIPPs, at least in the pre-pensions simplification era, have been very heavily and sometimes exclusively property-biased.
For those now approaching or at the point of retirement the question of liquidity in a ‘buyers market’ is becoming a problem.
Unfortunately for many investors they saw SIPPs as a tax avoidance measure on the principle asset of their business. They never really regarded the SIPP for the purpose as it was principally intended – to actually provide an income in retirement!
The liquidity issue is a problem not just in directly held assets but is also becoming an increasing problem with indirect unitised funds where sometimes a moratorium is placed on withdrawals.
Over reliance on any one asset class is always potentially going to cause problems. Investors always need to remember the simplest of principles – “Don’t put all your eggs in one basket”.