The winning combination
There is no doubt about it - the self-invested pensions industry has been an unlikely success story over the past 22 years since inception and in the face of repeated and often contradictory legislative and tax changes.
The ability to be proactive and come up with innovative ways of investing in a pension in a tax-efficient manner, to see avenues of opportunities open up, only to be closed abruptly by a succession of road blocks erected by HMRC or the Treasury and often a combination of both, would seem to spell disaster. Instead of folding, the Sipp industry keeps bouncing back.
From the IFA’s point of view they need to work with a provider that is both nimble and able to meet the challenges of the legislators and regulators alike. Also, they need to stress to their clients that Sipps are not tax dodges and the prerogative of the rich, but are long-term saving schemes that may well go a long way to solving the pensions gap, while providing a solution that is most definitely fit for purpose.
An adviser’s number one goal is to ensure that his clients are advised to buy the best product available from the near 100-odd Sipp providers, in what remains a crowded market. What he should want them to buy into is a tax-efficient, flexible way of creating long-term savings and, more importantly the ability to invest in something tangible for retirement and before. This has to be a winner. For IFAs who have already adapted for RDR and those gearing up for it, Sipps provide a ready-made solution due to their fee-based nature. Last year, the ratings agency Defaqto found that 86 per cent of IFAs who advise on pensions recommend Sipps and goes on to state that “Sipps have been recommended by virtually all pension specialists and wealth managers”.
Sipps are now not only mainstream products, but key weapons in a pension specialist’s financial planning armoury.
Sipps is an industry that is worth almost £100bn and well over half a million plans in existence. Now more than ever, their relevance cannot be questioned and even the Coalition Government’s reforms will not dim their brilliance. The introduction of Nest and auto-enrolment, may divert some attention, but I remain confident that the Sipp market will continue to grow – and fast. In fact, Nest might well go the way of stakeholder. What we will witness is a consolidation in the number of providers. The purchase of James Hay by IFG Group and its amalgamation into its own Sipp businesses in 2010 is a noteworthy example. But new providers continue to come to the market.
So what do advisers look for when recommending a Sipp product and provider to their clients?
First of all, due diligence by the IFA is a must. Although it has been four or so years since Sipps became regulated by the FSA, this did not prevent some well-documented alleged frauds taking place. So, make sure that your provider is not only financially robust, but that it has the ‘all clear’ from HMRC. Once you are as satisfied as you can be about the providers’ provenance, then consider whether its products will suit your clients’ needs.