Investment Life & Pensions SIPPS Supplement June 2014 | Page 6

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SIPP Outlook

Reducing this rate to the same level of IHT, or
even lower, tempers the initial conclusion that
investors would rush to withdraw all their
pension funds from age 55. A reduction
would provide significant incentive and
confidence to consider pension funds as an
important, holistic part of estate planning.
SIPP providers are well-placed to take
advantage of these changes. Their investors
tend to be wealthier and have greater need of
such planning, therefore SIPP providers could
possibly look forward to them keeping their
funds and staying invested for longer.
Tax relief on contributions beyond the age
of 75
Complementing a review of the rate of tax on
death is a further review on whether tax relief
on contributions should continue beyond age
75. Changes to how pensions are treated
beyond the age of 75 are increasingly
outdated and sit uncomfortably alongside a
regime that will soon see the State Pension
start to pay out only a few years earlier. The
number of people still working well into their
seventies continues to increase, a
combination of improved longevity and fewer
manual jobs than a few decades earlier.
Should the restrictions on tax relief be lifted,
SIPP providers can expect to see an increase
in those saving beyond the age of 75,
keeping their SIPPs longer than today.

“After some time
to reflect, it
appears that the
SIPP market
post-Budget is
once again
polarised.”

expectations on how they should be able to
access their money will be high. In the not
too distant future they’ll demand access as
simply as their bank account online or using
the latest mobile payment app. The simple
truth is that such developments are likely to
be beyond the capability of the vast majority
of SIPP providers. Many are already behind in
the capability they can offer to their investors,
and they risk falling even further behind.

and our digital appetite to enable our
lifestyles continues to grow. From a standing
start at the turn of the century, over 50% of
the population aged 16 or over now regularly
use online banking - 75% for those aged 2534 and a respectable 43% for the atretirement demographic of ages 55-64 (see
Figure 1).

The most exciting pension landscape for a
generation
Despite their ups and downs, SIPPs have
come a long way. Over one million UK savers
now have one, totalling over £100 billion in
assets. That size cannot be ignored, which
goes some way to explain why there’s such
regulatory interest in them. However, there
are insufficient niche services and activities to
support so many smaller providers and their
numbers will dwindle. Regulatory action later
this year will be the first step on that journey,
and consumer demand will continue it from
April 2015 and beyond. The survivors will
thrive and will deliver the most exciting
products and services to pension savers for a
generation.

For those with the majority of their retirement
wealth held with pensions or SIPPs, their

Greg Kingston is Head of Marketing &
Proposition at Suffolk Life

Figure 1: Internet activities by age group, 2013

It is worth noting that, despite high profile
calls for changes, there appears to be no
current appetite to make reform to the rates
of tax relief on pension contributions. On
29 April, Steve Webb confirmed that he was
not aware of any changes.
SIPPs: automatic Budget winners?
After some time to reflect, it appears that the
SIPP market post-Budget is once again
polarised. Some providers will benefit in the
short-term whilst others may have to wait
longer.
The smaller providers tend to charge fixed
fees based on the SIPP itself and any
subsequent events or transactions. Therefore,
if there’s a trend for investors aged 55 and
older to start withdrawing greater levels of
income, they will not be affected. Conversely,
some of the larger more diverse providers
who base their charges on the value of the
assets and who have investors with low
average fund sizes are more likely to come
under financial pressure in the shorter term.
The demographic of SIPP investors who’ve
lower fund sizes are the most likely to
withdraw more or all of their pension fund
come April 2015, and the subsequent
reduction in AUA (assets under
administration) will lower providers’ revenue.
Technology, and those who are able or willing
to invest in it, will catalyse success post-April
2015. Consumer expectations have already
been raised by the Budget, and those
expectations will continue to climb. The UK
has embraced online and mobile banking,

26

Source: Office for National Statistics, Internet Access - Households and Individuals, 2013

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SIPPs