Self-invested personal pensions (Sipps) could become a normal part of employee benefit packages in the near future, according to pension experts, offering more individuals the chance to take greater control of their retirement fund and invest it in a wide variety of assets.
ICAP, the world’s largest inter-dealer broker, already offers its employees the opportunity to join a group Sipp through Standard Life, and earlier in January GlaxoSmithKline, the pharmaceutical company, offered its employees the chance to take membership of a group Sipp.
The Glaxo scheme is provided by Legal & General and allows members to take assets accumulated in the company’s previous pension schemes, and invest them in a large number of funds.
“There is a movement in pensions towards individual responsibility,” says Tom McPhail at Hargreaves Lansdown. “This is what both Sipps offer. I can see a point when Sipps and personal accounts are the only pension options.”
Personal pension accounts are part of the government’s initiative to automatically enrol all employees into an employer-
sponsored pension plan. They are due to launch in 2012.
The accounts would contain a range of default funds and be priced competitively. But a group Sipp would offer the chance for wider investment opportunity and would sit at the opposite end of the spectrum, says John Moret at Suffolk Life.
“Sipps are now well-
established vehicles for pension savings,” says Moret. “Around 300,000 individual investors have one and post- simplification they have the ability to hold one alongside an occupational scheme. There is, therefore, scope to introduce Sipps to the workplace.”
The costs and risks of trust-based occupational schemes have put increasing pressure on employers, says Andrew Tully at Standard Life. But group Sipps are a viable alternative.
For companies, group Sipps offer the chance to provide a pension scheme that covers everyone, from general staff to executives. Individuals can choose with whom they wish their money to be invested and how much.
Sipps also offer companies the chance to offer share schemes that can be invested as part of a pension. Employees would be able to purchase subsidised shares in the company and over time roll this into their Sipp to make the investment tax-efficient. This, says Tully, could be a useful benefit with which to attract quality staff.
Sipps can now be set up with small sums of money and advisers say they are no longer limited to individuals with large pension pots to invest. For those interested in having more autonomy over their pension investments, they offer a wide variety of options.
Standard Life says a quarter of the Sipps it sells are now group Sipps, and that more large companies are starting to make inquiries to see whether they could offer them to staff.
One of the arguments used against Sipps was their inability to contain protected rights funds built up by contracting out of the second state pension. |But from October these will also now be permissible in Sipps.
However, Tully says that the move to group Sipps will take time. “Companies won’t switch schemes necessarily straight away but, as a new scheme is set up, employers might consider it,” he says.
The benefit of a Sipp is very clear in the current market climate, argues McPhail. “As of April 6, the tax relief available for money put into pensions will decrease,” he says. “So it makes sense to put as much as you can in now.”
