All Rosy In The Garden?
We hear a lot in the press on the growth of the SIPP market. Double digit growth year on year and I recently read a statistic that over 70% of new individual pension business is SIPPS. Wow - pretty impressive right? In fact for as long as I can remember SIPPS have been regarded as the success story in pensions following a myriad of own goals from different areas of financial services.
All rosy in the garden and a super-smashing-lovely place to be? Well yes SIPPs are a huge success but a closer look at the market and its participants throws up some challenging issues:
- Growth. The fact is that the headline grabbing growth figures for SIPPS are mostly happening at the low cost end. Lots of issues about "fake SIPPs", "free SIPPs" and whether some of these clients need a SIPP or actually get one. On the other hand, if these SIPPs get people investing in pensions rather than being turned off by insurance company products, maybe that's no bad thing.
- Legacy Clients. If an adviser was placing a pension client 5-10 years ago a full SIPP might have been the only option if the client wanted to access a discretionary fund manager or collective investments. In fact it wasn't even that long ago that a SIPP was one of the few choices for income drawdown. The result is lots of older SIPPs paying high fees which should really be moved to cheaper SIPPs or personal pensions. With the wide choice of lower cost products now available the question is what proportion of Full SIPP clients are in unsuitable products?
- Size and Strength. A useful insight is a SIPP survey from the summer and while not all providers disclose information on SIPP numbers, nearly half of the 49 providers which did have less than 1000 SIPP clients. Nothing wrong with small or boutique but the concern is that most of these books will stay small and the sustainability of such a business model in the longer term given the increasing regulatory burden in being a SIPP provider. A contraction of providers is inevitable and the recent acquisitions/mergers of both big and small providers are evidence of that.
The key here is the old adage that you can only know where you are going if you really understand where you have been. The SIPP market is unrecognisable to the one I entered at the start of my working life with further challenges on the way for both providers and their clients. That 70% growth figure is good news but being the right sort of SIPP provider is vital if we are to get the benefit of it.
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