Life assurance companies are competing with successful fund platforms to gain their own slice of the market in self-invested personal pension plans (Sipps), but advisers say not all products are being targeted at the right customers.
The question, says John Moret of Suffolk Life, is whether the movement of business to Sipps has been triggered by incentives paid to advisers and whether some Sipp customers might have been better off in simpler pension structures.
The Financial Services Authority, the industry watchdog, is conducting an inquiry into the sales of Sipps by financial advisers which will look at the commissions paid to advisers.
Since the rules on pension investment changed in April 2006, investors have been able to invest 100 per cent of their salary, up to £225,000 a year, in a huge variety of assets via Sipps alongside a conventional pension plan.
There is currently a government consultation paper questioning whether protected rights pension funds can also be transferred, which could lead to a further £100bn invested into Sipps.
But Sipps differ to ordinary pensions in certain significant respects. Traditional pension plans tend to charge a headline rate related to fund annual management charges, of perhaps 1.5 per cent. Sipps are more likely to operate a flat annual fee and then charge dealing fees and other costs on top. Although some organisations such as Fidelity and Hargreaves Lansdown offer attractive pricing charges, more bespoke plans can cost around £500 per year, which make them less appropriate for smaller savings pots.
Another issue is investment choice. As Sipps offer wider, and potentially riskier, investment opportunities, some advisers say they are best suited for those with very large pension pots who can afford to dabble in more esoteric asset classes.
“Sipps are not a mainstream product in my opinion,” says Shaun Sandiford at James Hay. “They are complex and require a greater range of advice. They should not be sold just because they are fashionable and in vogue.”
What cannot be disputed, says Moret, is that many life companies are investing large percentages of the money in their Sipps into their own funds. Friends Provident, for example, requires its Sipp holders to invest £20,000 in its insured funds.
“This issue has been around for a while,” says Moret. “It would appear that some Sipps are being set up by life companies and the investments are then all going into the life company’s funds. The argument is that you don’t need a Sipp to do that, you could have a personal pension.”
Standard Life says it believes its Sipps are well targeted at the correct audience who will use the self- invested options available to them. Most of its Sipp customers are wealthy, and the average Sipp fund is £165,000. Some 36 per cent of the company’s £7.7bn Sipp book is invested in its own insured funds, but Andrew Tully of Standard Life says the funds are good and that he does not believe this is too high a figure.
Pension choices are likely to become simpler with the launch of personal accounts in 2012. Personal accounts will allow employers to fund inexpensive, simple plans and Sipps will provide wide choice and the ability to take greater control of investments for sophisticated investors.
