Investment Life & Pensions SIPPS Supplement June 2014 | Page 5

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08/05/2014

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SIPP Outlook

The next chapter
SIPPs have had their share of ups and downs, but as
Greg Kingston explains, the recent Budget changes may
provide the direction for the next chapter in their history
So far this decade the SIPP market has
become increasingly polarised. Previously
something of a cottage industry populated
by a high number of small boutique firms,
the market has evolved to see a small
number of providers grow in size to
dominate. Although there are still over 100
active SIPP providers, the top ten of these
now account for some 80% of the market.
Of those, many have also successfully
diversified their business into areas such
as platform operations.
The smaller providers are under increasing
pressure. The commercial pressure has been
mounting for some time. As recently as five
years ago they could expect to attract
investors looking to consolidate pensions into
a SIPP and invest relatively simply, into
collectives or equities. That model has been
broken by the rise of platforms who offer
simpler and integrated access to those
investments.
The regulatory pressure is relentless. Not
always backed up by robust systems and
record keeping, smaller providers have had

to contend with various changes to
unsecured income and ASP (alternatively
secured pension), GAD limits, lifetime
allowance and all the associated changes to
protection to name but a few. Coupled with
three Thematic Reviews and proposals to
capital adequacy that threaten to break
balance sheets, the regulator itself has said
that it anticipates a number of providers will
close their business.
The commercial pressures have undoubtedly
resulted in some SIPP providers accepting (or
in some cases, actively soliciting) a lower
quality of business. There have been frequent
reports, and some notable unfortunate
examples, of high concentrations of business
invested into single assets. The fund sizes are
frequently smaller than other historic
business, and the assets themselves have
proven to be esoteric in nature, often
overseas.
The high profile failures of some of these
investments has led to greater scrutiny on the
SIPP providers that accepted them, as well as
the advisers that introduced the business and

the investments. The FCA’s recent publication
of action taken against 1 Stop Financial
Services provides focus on their concerns, as
does their more recent alert “Pension
transfers or switches with a view to investing
pension monies into unregulated products
through SIPPs”.
The tightening regulation has hit new
business volumes with the inevitable
consequence of slowing the revenues of
smaller SIPP providers. Recent industry
surveys show that growth in the smaller, more
bespoke parts of the SIPP market has
stagnated. More worrying is a growing trend
for new business figures to no longer be
reported, from which the conclusion must
surely be that some providers are now
shrinking.
The March Budget then shook the entire
world of pensions, SIPPs included, to its very
foundations.
Key Budget changes
Full access to pension funds for all from
age 55
Already available to a minority (investors with
a secure minimum income of £20,000 a year)
via flexible drawdown, this was the Budget’s
single most important change. That change
was magnified by the sound bite from the
Chancellor George Osborne that announced
it: “Let me be clear: No one will have to buy
an annuity … People who have worked hard
and saved hard all their lives, and done the
right thing, should be trusted with their own
finances.”
SIPP providers benefit from years of
experience providing retirement income for
those who choose not to annuitise. Through
the various regimes of drawdown, unsecured
income and ASP they’ve built up experience
and systems to pay out income under PAYE,
and to vary it according to the needs of each
individual.
A review of the rate of tax of pension funds
on death
Pension investors face tax rates of 55% at two
points in retirement: a tax on funds already
crystallised and a tax on funds uncrystallised
when the investor has passe