Economic conditions affect self-invested personal pension and small self-administered scheme markets like all financial markets.
The way the SSAS and Sipp market evolves in 2024 therefore depends on a number of political and economic factors.
At the forefront is the Bank of England's monetary policy committee.
As the Institute of Economic Affairs warned in mid-December, "there is a clear risk that the BoE will keep rates higher for longer than is either necessary or desirable", which it said could result in the UK being pushed into the fourth recession in 15 years.
Apart from one instance in 2016 – when inflation according to official CPI figures was 0.3 per cent and the BoE base rate was 0.5 per cent – late December 2023 witnessed the only time that the base rate has been higher than inflation, at 5.25 per cent against 3.9 per cent, by a significant margin (this continued in January).
Secondly, when referring to the best possible retirement outcome for pension savers, The Pensions Regulator and the government say this is best achieved by having "fewer, larger and better run schemes".
Although evidence of this view is scarce and it could be argued that these products from a customer perspective lend themselves better to a local high street provider than the slew of conglomerates we see today.
And then of course we might have a general election in 2024.
I predict a tsunami of HMRC scheme audits and who knows what they might find.All of these will have a bearing on how the Sipp and SSAS markets evolve this year.
If things go badly – the economy goes into recession, inflation rebounds and interest rates remain stubbornly high – then the outlook will be gloomy. As it stands inflation rose to 4 per cent in December, as opposed to falling further to 3.7 per cent as economists had predicted.
There will be less disposable and therefore investable income, which will hit savings and pension provision.
On the other hand, say inflation drops to 2 per cent by April, as some economists predict, interest rates fall, the cost of borrowing comes down, the Sipp and SSAS markets will receive a shot in the arm.
Consolidation is likely to continue this year as a number of providers have declared their intentions.
We will have to wait and see how the markets in general react to a new government, not just the pension industry.
Hurdles ahead
Of the 'known knowns', we believe that the abolishment of the lifetime allowance will cause chaos, particularly for the Sipp and SSAS market, which typically handles the larger retirement funds on behalf of high-net-worth individuals.
The latest draft legislation proposes a system so complicated we can only assume the Treasury is trying to regulate the pensions system out of existence.
A lurking threat is that a Labour government will reinstate the LTA, meaning we have to put everything back as it was, creating considerable extra workload.
What's more, recent rulings by the Pensions Ombudsman as well as indications from the Department for Work and Pensions give a clear signal that plans could be afoot to clean up the rough edges of the SSAS market.
We believe the ultimate outcome could be a return to compulsory professional trustees for SSASs, which would wipe out the DIY and practitioner-only markets. A positive outcome.
On the same theme, the new HMRC pension scheme return requirements from April 2024 will force the need for quality professional firms to keep accurate and up-to-date records.
The level and granularity of data that will be required clearly shows HMRC will be on the hunt for wrongdoers and the current approach of some firms to try and stay below their radar will no longer be possible.
I predict a tsunami of HMRC scheme audits and who knows what they might find.
Market shifts
This year will also see the outcome of the recent DWP/TPR levy consultation announced.
The likely result will be a 6 per cent increase in the levy across the board, which seems fair to us but should the worst-case scenario occur and a £10,000 levy be imposed on each SSAS, the market will burst into life like an angry swarm of bees.
We expect switches into one-member schemes or Sipps ahead of the proposed levy imposition, due in 2026. But I feel confident at this stage that no one is going to pay a £10,000 levy unless it's absolutely necessary.
The effect of the Financial Conduct Authority's consumer duty on the Sipp market will also start to be felt this year.
Our view is this will lead to a return to the original purpose of Sipps, which was to purchase commercial property with a personal pension.
Everything else is catered for by low-cost platform products, which will mean many non-property Sipps will cease to be viable from a cost point of view.
If the consumer duty is followed to the letter of the law, this should also mean that all IFAs and financial planners should offer their clients whole of market solutions, including what some advisers view as niche solutions.
We are seeing some indications that the consumer duty may backfire spectacularly where advisers simply deem themselves unable to offer fair value to all but the most wealthy customers or only to customers wanting vanilla solutions.
The advice/guidance proposals, which are designed to offer solutions to lower value clients, all seem rather muddled at the moment.
Sipps and SSASs may suffer from this fallout, which could see a process of customers going direct.
We believe this is not what the FCA necessarily wants to see as it may lead to mis-selling or what is now called non-target market selling.
Richard Mattison is director of the Whitehall Group
