PensionsMar 19 2015

Happy 25th birthday, Sipps

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Happy 25th birthday, Sipps

Today, the self-invested personal pension (Sipp) turns 25 years old. The first Sipp was launched on 19 March 1990, and the vehicles have grown in popularity ever since – particularly over the past few years.

Money Management asked some key spokespeople within the Sipp industry what they think has been the highs and lows over the past 25 years, from regulation to investment flexibility.

John Moret, founder of consultancy firm MoretoSIPPs:

“The first Nigel Lawson-style Sipp was taken out in March 1990. Over the next 25 years more than one million investors have followed suit and total Sipp assets are now up to around £150bn. Annual market growth rates have consistently exceeded 15 per cent, fuelled by a number of key events:

• The introduction of income drawdown in 1995;

• The fallout form Equitable Life in 2000;

• A-day in 2006;

• The growth of platforms over the last five to 10 years;

• The new pension freedoms being introduced in April look set to act as another growth trigger.

Unsurprisingly there have been some growing pains, mostly linked to regulation, specifically:

• The chaotic introduction of the regulation of Sipp operators in 2007;

• The recurring reductions in annual and life time allowance;

• The U-turn on residential property investment and the resulting unnecessarily complex taxable property provision;

• Three thematic reviews of Sipp operators;

• The insidious shift of responsibility away from investors;

• The ill-conceived capital adequacy requirements to be introduced in 2016.

Despite the repeated attacks from regulators and legislators the Sipp market has remained very resilient, albeit many Sipps today resemble personal pensions of old – particularly the platform-based variety. The true bespoke Sipp is declining in popularity with the regulatory pressure on operators. That’s sad and hopefully the trend will be reversed with the new pension freedoms. Two million Sipps by 2020 looks a realistic target.”

Martin Tilley, director of technical services, Dentons Pension Management:

“Sadly I’m old enough to remember the launch of Sipps and aside from their introduction, which granted considerable freedom to invest, the best thing was the introduction of income drawdown in 1995. Although drawdown has been through a variety of guises, the flexibility of investment within a Sipp was of little use if you still had to sell the assets and buy an annuity at the chosen benefit date. At that point the control of capital and investment was lost but drawdown provided an extended period of control.

The worst thing that’s happened was the relaxation of controls over who could operate as a Sipp provider, brought about by the FSA’s change in regulation of Sipps in 2007. This permitted entry to the marketplace of some firms whose strategy was too heavily biased towards profit over controls and this has led not only to a tarnishing of the reputation of the industry, but also more stringent regulatory controls which have had the effect of reducing client choice but increasing costs.”

“The constant tinkering makes providers more cautious than they need to be, which goes against why Sipps came about in the first place” Claire Trott

Claire Trott, head of technical support, Talbot and Muir:

“In the last 25 years the high for me has to be the Sipp leading the way in pension reforms. Bespoke Sipps have always been the first to implement the changes allowed by successive governments, giving the saver access to the widest options in terms of retirement and death benefit options. Sipp savers expect to be able to use all flexibilities from day one and the industry has usually delivered, and delivered with innovation.

The negative for me, was the regulation of Sipps in 2007. This isn’t to say that they shouldn’t be regulated. Savers should be protected from the ‘anything goes’ attitude that has plagued many a Sipp in the past. However, the constant tinkering and amendments to what we need to do, how we need to act without any hard and fast rules makes Sipp providers more cautious than they may need to be, which goes against why Sipps came about in the first place.”

Bob Woods, chairman, Mattioli Woods:

“Nigel Lawson gave birth to the Sipp in his final budget of 1989. The first schemes were launched a year later, and the industry has grown into a multi-billion pound industry embracing well over a million schemes. However, this unrivalled commercial success has not been a smooth passage. For some clients, there has been an increase in costs, and sometimes without a corresponding benefit in investment return. For others, self-investment without the benefit of advice has been a double-edged sword. The industry regulator, having publicly expressed concerns in its various industry reviews about some Sipp providers, has now moved to raise the bar of capital adequacy – the amount of capital Sipp providers must retain in their business, much like banks.

After 25 years, the Sipp has established itself as the pension vehicle of choice, but the name itself remains a contradiction; for most investors, pension investment also requires good professional advice.”

Greg Kingston, head of proposition and marketing, Suffolk Life:

“The new pension freedoms and tax rules from 6 April will mark the point from which savers start to think differently about their pensions. Differently on how they fund their retirement and how they can use them to pass wealth to their beneficiaries. That wouldn’t have been possible without Sipps paving the way, making pension income options the best thing to happen to Sipps and the whole pension market thereafter in the past 25 years.

The wide variety of investment options within Sipps has enabled advisers and their clients to achieve some wonderful things, not least with commercial property. However, the tragedy of that investment flexibility is how it has been abused by a proliferation of esoteric and unregulated investments, many of which have failed, ultimately to the great cost of investors, providers and advisers together. Sipp regulation has come in for much criticism, but one must wonder to what greater extent the Sipp market would have been infected - and investors harmed - by such scams without the controls that it has introduced.”

Elaine Turtle, director of DP Pensions Limited:

“In 1989 “Memorandum 101” mapped out the new world of self investment for individuals with all the freedom of a free competitive market. Shortly after this, banks began to act as a provider, which meant practitioners could work with them utilising their SSAS experience to deliver products through financial advisers. Then 2006 saw the arrival of “A-Day” and simplification, which provided further opportunities for Sipp providers to strengthen their place in the market.

Innovation has always been central to the Sipp industry and “R-Day” opened up the market to newcomers with a relaxation of the regulations on who could be a provider. But this has brought with it an increasing role for the regulator, as it perceives there is too much freedom and that the self-invested need protection. My greatest fear is that capital adequacy bites in and inhibits the freedoms envisaged by original liberty.”