Family SIPPs: The forgotten pension
If classified as defined benefit, scheme pension would have to comply with new rules, including contributing to the Pension Protection Levy Fund and more onerous legislation, which many can ill afford. This put some off the market, with Dentons quickly withdrawing its scheme pension. As family SIPPs are often used as a vehicle for scheme pension, this left the product on somewhat rocky ground.
However, while some providers dived for cover until the uncertainty was cleared up, others remained bullish. At the time, Hornbuckle Mitchell’s sales and marketing director Mary Stewart said that “we are confident that it is just an oversight”. However, she conceded that if left as it is, the ruling would “change the playing field considerably”.
In the family SIPP market, Alltrust, Axa, Pointon York and Rowanmoor all remain confident that the ruling does not affect family SIPPs. Pointon’s Christopher says, “We took advice and didn’t think that it would affect us”, adding that they interpreted it as only affecting final-salary schemes. But she admits that it is frustrating that since the ruling in October last year, it has all gone a bit quiet and providers are still in the dark.
Another blow to scheme pension was dealt with the change to drawdown rules. The extension of drawdown beyond age 75 and the introduction of flexible drawdown mean that many feel scheme pension has had its day. This is the reason that Curtis Banks believes that there is no mileage in continuing to run a family SIPP, as drawdown now offers the same that scheme pension could.
However, the key difference here is that drawdown is still linked to gilt yields, which are currently at historical lows and expected to get lower if further quantitative easing is announced. Meanwhile, scheme pension is based on actuarial assessment of a suitable income, taking into account ill health as well as age, gender and gilt yields. It is for this reason that the four providers in the tables feel there is life in scheme pension yet.
Where to now?
There is no doubting that family SIPPs will never hit the mainstream in the same way as individual SIPPs have. In a similar case to small self-administered schemes, they have the potential to attract more interest than they currently do, but, crucially, are lacking the marketing and will from providers to promote them. While it is unfair to put this burden entirely on Axa, it is the market leader, having the lion’s share of the schemes. As a large company, it also has the budget and brand power to promote the schemes more than the others.