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There are continuing challenges in Sipps according to Defaqto.

Defaqto said that these challenges include meeting FSA expectations following the thematic review on the suitability of transfers to Sipps, treating customers fairly and product suitability for the client. The report by financial research firm Defaqto, Sipps in the UK 2008 – The Personal Pension of the Future, said that providers and IFAs need to ensure that transfers are done for the good of the client.

It added: "Defaqto believes that recent market movements have now signalled the beginning of the predicted mergers and acquisitions activity in the Sipp sector. This activity is likely to include providers of all shapes and sizes and may come in the form of large players seeking to expand their market presence with targeted acquisitions or in the form of regional player consolidation in order to meet market challenges as a bigger business."

Defaqto added that Sipps will be increasingly prevalent in the UK market as an individual retirement savings and income product solution in the years to come.

Matt Ward, Defaqto's principal consultant for pensions and wealth management and author of the report, said: "Since their launch in 1990 Sipps have blossomed from a niche to a mainstream pension proposition and the attention now paid to their importance by numerous financial services institutions in the UK will ensure their market longevity.

"Their ability to facilitate pensions savings, consolidation and income requirements with access to a broad range of investment options will continue to meet the needs of IFAs and clients for many years to come. The fact that they are forming a key component within adviser platforms also ensures that they are embedded into the future of distribution in the UK.

Alec Ruthven, an IFA from Somerset-based AM Ruthven, said: "It is true that there are still some challenges in the sector. It is nothing out of the ordinary, if you take one product and decide it is the best thing ever and treat it like that for everyone without looking at clients' individual circumstances you could get caught out. For example, if everyone was sold an endowment because they are great, rather than looking at the individual, then mistakes are made. Sipps are a very good product but you need to make sure that they are for the right client. More and more people over time are financially aware and want to be actively involved in investment decisions, Sipps allow you to do that, and they is why they are here to stay."