Andy Tuck, director of Walker Crips Investment Management, points out that prior to the new legislation, Sipps did allow flexible drawdown so an investor could keep a lump sum in an invested environment. He suggests a couple of investment themes which could play out under the new rules though.
“One thing that strikes me is that perhaps people are going to want larger sums of readily available cash in future, so they may want to invest a bit more conservatively the closer they get to retirement,” he notes.
“It still holds true that a lot of younger people will need that longer term high level of exposure to global stock markets either through managed funds or through direct equities to gain the full benefit of long term capital growth within their pension scheme.”
More generally the pensions industry shake-up seems to have opened up the investment opportunities for individuals.
Ian Price, divisional director of pensions at St James’s Place, agrees there is now more choice when it comes to how to invest in and draw from a pension pot.
“The key thing this has driven is it’s created this environment where people appear to have far more choice, therefore I think they will look more closely at the options that are available and plan how they are likely to take their money out over a period of time,” he says.
He is hopeful that the changes have “re-energised” people to plan for retirement, with investors now more aware of other trends, such as increased life expectancy.
One theme that Jeff Steedman, Xafinity’s head of Sipp and Ssas business development, is seeing play out among business owners is the purchase of the premises they trade from in a bid to retain some control.
He remarks: “I often find there are two different types of client out there; there are some people who like the stock market and are quite happy to let their financial adviser give them advice and put it into funds and shares, but some small business people simply don’t like the stock market because they don’t feel they have any control over that.”
Mr Steedman explains how it works: “If your business currently owns the property you might owe the bank some of that in the form of a mortgage. But if you and your business partner, or whoever you’re in business with, have existing pension money that you’ve saved up over the years you can put that in a Sipp and use the cash to buy the business.
“The business has the money and pays off the mortgage and can reinvest it and grow the business. On the pension side, the pension scheme leases the property out to the company and gets its growth in rent, at roughly 7.5-10 per cent a year in terms of overall value, so your pension fund is getting pretty decent annual growth.”
Bestinvest’s wealth management director David Smith highlights commercial property funds as “the theme of the day”. He says that valuations are starting to rise, as are income and rental yields.
According to the IPD UK Monthly Property Index, commercial property values in the UK climbed 1 per cent in March this year. It reported that values have now risen by 6.8 per cent over the last 10 months of consecutive growth, but remain below the 2007 peak levels.
But he cautions: “If there’s a big run on the fund and a lot of people want their money out at the same time the fund managers can put a moratorium on withdrawals to allow them sufficient time to find fair value for their properties, so clients can be locked in.”
Perhaps the prevailing trend is uncertainty about how those at retirement are going to draw on their pension funds and how investors can prepare for something that is still a relative unknown.
Greg Kingston of Suffolk Life questions what approach investment and discretionary managers will take when investors will no longer have to “crystallise” their pension.
“We used to have lifestyling available but now some customers who retire at 65, or whatever age they pick, could easily remain invested for 30 years while they draw income. So do they apply the same principles, or tailor portfolios to work with an income drawing period in the investor’s life?
“It will be interesting to see what steps they take to deal with investors who stay invested longer and draw an income but may not be able to contribute.”
WHAT IS ALLOWED IN A SIPP?
What is allowed in a Sipp?
• Individual stocks and shares
• Government securities
• Unit trusts
• Investment trusts
• Insurance company funds
• Traded endowment policies
• Commercial property
• National savings products
• Deposit accounts
What is not allowed in a Sipp?
A Sipp cannot be directly invested in residential property but this asset type can be held through certain types of collective investments.
Source: Money Advice Service
FUND PICKS
Jason Hollands, managing director of Bestinvest, picks some core holdings for a Sipp:
• Standard Life Global Absolute Return Strategies for a low volatility holding. This popular and large fund is a de facto umbrella for roughly 30 underlying trading strategies.
• Trojan Fund is a multi-asset fund aimed at long-term capital growth but with a significant emphasis on capital preservation.
• Newton Global Higher Income which is a core global equity fund, with an emphasis on businesses with strong cashflow and decent yields
