Even prior to the introduction of pension freedoms in spring 2015, self-invested pension plans (Sipps) were rapidly increasing in popularity. Although a number of factors have contributed to this, the trend has largely been due to consumers continuously favouring a more flexible approach to drawing retirement benefits.
Even prior to the introduction of pension freedoms in spring 2015, self-invested pension plans (Sipps) were rapidly increasing in popularity. Although a number of factors have contributed to this, the trend has largely been due to consumers continuously favouring a more flexible approach to drawing retirement benefits.
The freedoms have added further weight to this by offering the option to withdraw funds whenever required. Previously, although withdrawals were flexible, policyholders were limited to the Government Actuaries Department (Gad) rate, which was set in relation to age and gender.
Originally designed to target sophisticated and experienced investors, the combination of regulatory change, resultant merger and acquisition activity and overhauls to other savings products means Sipps have now become a much more common household retirement vehicle.
Indeed, the term “self-invested” is something of an anomaly, as many now use Sipps to invest in the same funds but with the same strategy as standard personal pension arrangements.
“The Sipp market is in a massive period of change,” says Phil Smith, chief executive officer at Hornbuckle. “It is moving from being a market of complex assets for largely high net-worth clients to being a mainstream retirement solution with something to offer every shape of client.”
In what was a good response to this year’s survey, a total of 68 plans have been reviewed from 52 providers. Notable absences include Carey Pensions, Guardian, Jamieson and Pilling which all failed to complete on this occasion, together with Yorsipp, which refused to participate in any future surveys.
Paying the price
Sipp charges can play a pivotal role in affecting performance and the contrasting approach that providers take in collecting fees is shown in Table 1. In line with the previous survey in April this year, most providers opt for fixed charges across the board, with the remainder charging for time or as a percentage of the fund. There is little in the way of change from April’s survey, with the majority of providers keeping fee levels static. As firms generally review fees on an annual basis, small increases can be expected over time. Table A provides further information about costs associated with crystallisation of benefits.
Property puzzle
Sipps are possibly one of the most flexible and attractive investment wrappers available. Upfront tax relief at the investor’s marginal rate, growth exempt from capital gains tax and the facility to invest in almost any asset means their purpose can stretch beyond the simple generation of a retirement income.
Investing in commercial property is seen by many as a key reason for choosing a Sipp over other pension schemes, as it is viewed as a great opportunity to combine the benefits of bricks and mortar with substantial tax relief. Table 2 displays some quite telling data on this front.
