The End of the Family SIPP?
Family SIPPs, and the Scheme Pensions they aim to provide, have become an endangered species recently, and recent reports indicate they might even be close to extinction.
The key component of these products was the Scheme Pension, a fixed rate of pension which a SIPP or SSAS could provide through income drawdown, individually calculated for the client rather than using a standard GAD table. The income could be a lot higher than under normal drawdown, particularly after age 75 under the old ASP restrictions or if the client had a reduced life expectancy.
Family SIPPs evolved as a vehicle for providing the Scheme Pension, some with added tricks such as creative ways of allocating the investment income, something we steered clear of as it always seemed to be asking for trouble from HMRC. If you are a long term blog follower you will know we flagged this up as long ago as 2009.
The first threat to Scheme Pension was the 2011 changes abolishing ASP. Suddenly Scheme Pension was not much greater than normal Capped Drawdown (on the cautious assumptions we use to calculate it, at any rate), so unless the client was in poor health it didn't look hugely attractive.
The threat now is draft DWP legislation in the Pensions Bill, which casts doubt on what sorts of scheme can provide a Scheme Pension. This may be a red herring - there is a feeling that it may be no more than the DWP not understanding the finer points of different types of pension scheme, and that it is more likely that HMRC, not the DWP, would want to attack Scheme Pension. Nevertheless it has led to a few providers publicly announcing their withdrawal from the market.
My own view? Well, I do think Scheme Pension has been oversold, we have always been cautious about it which perhaps explains why we have set up only a few cases in practice. Some firms might have been too clever with it - self-certification by clients of their health, ambitious investment returns in the Scheme Pension calculation, creative allocation of investment returns, promises of special death benefits - it all smacks of asking for trouble.
We will need to wait for clarification of the DWP point, but I do think that Scheme Pension now has limited appeal anyway - still valuable as an option for those with reduced life expectancy, but with limited appeal otherwise. We took our Family SIPP off the market back in April, and I don't think it will be reappearing in a hurry.