Written by Altus on Thursday 7 March 2013
SIPPS were introduced in 1989 as a new, more flexible pension option that allowed access to a wider investment universe than personal pensions. These products were expensive to administer, sometimes costing investors thousands of pounds per year, and tended to be attractive only to the wealthy investors with niche requirements. As a result, demand for SIPPs was relatively limited and many of the providers were small businesses.
However, this landscape has changed dramatically over the last ten years. SIPPs have polarised into low cost, simple investment universe that cost £200 to £300 per year (excluding trading costs) or complex SIPPs that hold assets such as commercial property, costing £750+ per annum. At the simple end, SIPPs now compete with personal pensions and offer the benefit that an investor can move into more esoteric instruments without the need to transfer to a new pension scheme. Within a SIPP they can unlock additional features plus the relevant increase in administration charges according to the services they consume.
SIPPs have now become a popular pension option for large insurance companies, platforms, large vertically integrated distributors/advisers and wealth managers. A market that was worth c£15bn in 2004 is now estimated to be worth c£150bn with c1m scheme members in 2013.
What is surprising for such a large and growing industry is the lack of robust data. The FCA has regulatory responsibility for defining and monitoring how SIPPs are administered and collects high level product sales data. HMRC manages taxes and has information on both accumulation and decumulation pensions. The ABI also collects data on SIPPs but again this tends to be fairly high level information. There is no body currently responsible for collating detailed data on SIPPs.
This means there are no statistics that differentiate transfers in from new money, in turn disguising underlying trends such as SIPPs being used as a consolidation vehicle or as the preferred form of ongoing personal pension savings. The statistics also do not reveal the types of propositions that are generating most demand from investors, for example simple low cost SIPPs, eSIPPs or complex SIPPs. This is valuable data for the FCA in terms of fulfilling its role in regulating product providers, distributors and administrators as well as providing a reliable source of data for the industry.
Until this is addressed, the industry will be reliant on SIPP market surveys undertaken by independent bodies conducting reviews that are typically neither regular nor whole of market.
Although not ideal, we can see a solution whereby HMRC captures and makes available data on the number of scheme members plus the tax relief on contributions. This would measure the number of pensions and how much new money is going into these schemes. In addition the FCA and/or, ABI could enhance data submissions to include new money versus transfers as well as some simple categorisations for types of SIPPs being sold. Not the neatest of answers but one that could be implemented quickly and easily and would still be a much better outcome than today’s lack of industry data.