In 2005, a year before A-Day, the then chancellor Gordon Brown hit the headlines by making a U-turn on proposed investment rules governing what could and what could not be used for pensions.
His original plans had been to open up self-invested personal pensions (Sipps) to more esoteric investments, such as residential property, when 6 April 2006 came in, but pressure from the industry and from some members of parliament kiboshed the plans.
Research done at the time by London-based Killik & Co, revealed such investments would only have been suitable for sophisticated, high-net worth investors with at least £500,000 in their pension.
Moreover, many in the industry had commented such esoteric investments could have led to inappropriate products being sold to unsophisticated investors.
Yet A-Day did open up Sipps to commercial property, which has made the product more attractive, especially after the stock market woes in 2008.
Jeff Steedman, head of Sipp and Ssas business development for Xafinity, says: “The uncertainty of the stock market compared to the relative security of owning a physical asset has been one of the drivers for property within Sipps and Ssas, and this change will push many more people towards full self-invested contracts.”
Also, by clarifying the tax rules around Sipps, the government created a more even playing field between Sipps and small, self-administered schemes (Ssas), potentially creating more choice of retirement savings vehicle for clients.
According to Suffolk Life, before A-Day, Ssas were seen as “particularly beneficial to senior staff in small companies”. This is because they offered maximised pension contributions and investment opportunities, while Sipps offered flexibility in the payment of benefits.
But after A-Day, they became subject to the same legislation, meaning more flexibility for both savings vehicles, although there are still some differences between the two products.
Ssas and Sipp - main differences post- A-Day
| Sipp | Ssas | |
| Loan to sponsoring employer | No. Any loan borrowed from a sipp to an employer connected to a scheme member incurs a tax charge. | Yes - up to 50% |
| Purchase of shares in sponsorship employer | Yes, up to 100% of the scheme’s assets, subject to conditions | Only up to 5% of the scheme’s assets |
| Set up under trust by an employer as a common trust fund | No | Yes |
| Commonly set up as a scheme under a master trust by the provider | Yes | No |
| Protected Rights eligibility? | Yes since October 2008 | No |
Ian Price, divisional director, pensions and consultancy at St James’s Place Wealth Management, says A-Day helped to make Sipps more appealing for the higher-net-worth clients.
He explains: “For those with a lot of money and with big investment portfolios, and for those who want commercial property or to use shares in their own organisation, Sipps work well.
“The Sipp is great for some clients at the top end of the market but while it made more people aware of them, A-Day did not usher in the ‘Big Bang’ of popularity for Sipps that people thought it would.”
It is estimated by Hargreaves Lansdown approximately 900,000 people in the UK use a Sipp of one type or another. A bigger estimate has been provided by John Moret, founder of MoretoSipps, who says there are 1.4m Sipps in the UK in total, with assets totalling £175bn.
This compares with just £75bn invested in the product in 2011. They now represent about 15 per cent of the total UK personal pension market.
However, whether the change to the lifetime allowance - from £1.25m to £1m will have any effect on Sipps remains to be seen.
