A recent, albeit slightly optimistic, headline read that new self-invested personal pension (Sipp) sales would hit 1.4m by 2022.
One of the problems with this sort of prediction is that there are many different ways of defining a Sipp. Wind the clock back almost 30 years to 1990 when the first Sipps hit the market and the product was very different. They were much more aligned to Nigel Lawson’s original blueprint, outlined in 1989 when he was chancellor, giving individuals freedom to invest more widely than the traditional personal pension.
Today the Sipp product life cycle has moved on significantly. However, many Sipps now actually resemble the personal pensions on which they were based – the main difference being that instead of being locked into a single life company’s poor performing and very expensive funds, the advent of platforms has meant that multiple funds and a range of other investments are now readily and cheaply available.
Not much more than 10 years ago a Sipp was an aspirational product largely for the elite. Today it has been commoditised and the issues affecting the market have changed.
One of the biggest concerns is the possible brand damage to Sipps caused by an increasing number of regulatory abuses, mainly involving inappropriate and often unregulated investments and advisers. Headlines involving Sipps related to frauds, scams and ill-advised investments are becoming regular.
Some of this negative publicity is as a result of the ill-conceived regulatory framework that governs those operating and advising on Sipps. This includes two ombudsmen and a complex and opaque compensation system that has done little to stem the flow of Sipp investment scandals.
In the past 18 months I have provided expert reports on several different Sipp legal or regulatory related issues. In all cases these related to investments made by Sipp investors over the period 2006/2014. These dates are significant as they coincide with two big changes in the investment framework for Sipps.
The first was the fundamental change to tax legislation in 2006 known as A-Day, which effectively allowed Sipps total investment freedom albeit with potentially penal tax charges where the investment was deemed to be “taxable property”. It should not be overlooked that the FSA authorisation for Sipp operators was not introduced until a year later, providing a window of uncertainty over investments made in that period that subsequently failed.
- Sipp market should remain strong despite rise in complaints.
- The products have evolved into being mainstream leading to some misuse.
- Regulators have always kept a close eye on the market.
That window got a lot bigger as a result of the first of the FSA’s three thematic reviews of Sipp operators, published towards the end of 2009. Surprisingly, given the concerns some FSA officials already had at that time over the activities of some Sipp operators, the FSA’s published report following this first thematic review contained the statement: “We do not believe that, taken as a whole, small Sipp operators pose a significant threat to our statutory objectives.” There is no doubt in my mind that this comment led to complacency among some Sipp operators.