Jeff Steedman (pictured), head of Sipp and Ssas (small self-administered scheme) business development at Xafinity, notes: “We believe money will stay in the pension system longer. Broadly because people won’t be compelled to buy an annuity they can go into flexible drawdown and draw their benefits gradually in a tax-efficient manner. I think it will create more opportunities in the Sipp at-retirement market as the money is less likely to go into annuities and more likely to stay in the Sipp.”

The Sipp, originally introduced by the Finance Act 1989, is a popular pension option with figures from the Money Management Sipp Survey in September 2013 noting approximate total assets under management of £98bn, a significant chunk of money to be self invested.

While the Budget changes might open some new doors, there are already some interesting trends appearing in the Sipp market, some of which are being driven by regulation.

Mr Steedman notes: “One of the main trends we are seeing is towards a simple Sipp and a discretionary fund management (DFM) account. So often advisers will consolidate a client’s pensions into one Sipp and invest all the money into a DFM account, and that DFM will monitor it on a day-to-day basis.”

Mike Morrison, head of platform marketing at AJ Bell, notes that moving forward there are effectively three types of Sipp: a fund-based option usually offered by insurance companies, a platform-based Sipp, and bespoke Sipps, usually with more esoteric investments.

“It might look like the majority of Sipps will be grabbed by the platform element, but that might change in light of the new [pension] regime from next year. If people don’t have to buy annuities and have to put together portfolios using their pension schemes, then Sipps would be the ideal vehicle.”

“There is also the question about whether the new rules will apply overridingly to all pensions, or if there will be some legacy books from legacy offices that you have to transfer to Sipps in order to take full advantage of the new flexibilities,” he explains. “If so, that could give it [the Sipp market] a whole new boost.”

But Greg Kingston, head of marketing and proposition for Suffolk Life, points out that the traditional bespoke area of the Sipp market seems to be starting to stagnate and in some cases shrink, as early adopters of Sipps look for the same service for less, making cost more of an issue for investors.

“That is why you’ve found growth in the platform market,” he says. “But if you throw in all the changes Sipp providers are going to have to bring in – possible changes as a result of the thematic review; almost certainly new capital adequacy requirements – and then throw in a whole host of other changes to get them commercially ready for the budget as well as regulatory ready, that is a hugely challenging business environment to work in for the next eight to nine months.

“Again, big isn’t always better, but you must have the resources at your disposal to be able to put that level of change through and it’s inevitable some of the smaller ones are going to struggle.”

SIPPS

KEY FACTS

1989

The year Sipps were introduced through the Finance Act 1989

April 6 2006

The introduction of ‘A’-Day or pensions simplification was meant to introduce for Sipps new investment options, such as residential property and fine wine

December 5 2005

The Pre-Budget Report statement revealed a U-turn by the government retaining the existing restrictions on residential property, fine wine and high-value ‘personal chattels’

Q3 2014

Expected timeframe when the FCA aims to publish the results of its third thematic review into Sipps and the rules regarding capital adequacy of Sipp providers

£12m-£54m

FCA’s cost-benefit analysis in October 2012 suggests Sipp operators’ capital requirements will increase somewhere in this range, depending on the level of non-standard assets they hold