Sipp market set to grow by £1.9bn a year

Sipp market set to grow by £1.9bn a year

The UK self-invested personal pension (Sipp) market is estimated to grow by £1.9bn a year up to 2020, research from GlobalData shows.

The report, based on data from the Association of British Insurers (ABI), concluded the UK Sipp market was worth £2.4bn in individual, new business annual premium equivalent across insured and non-insured products in 2017.

This figure represents a 55 per cent increase from £1.5bn in 2016.

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According to Danielle Cripps, financial analyst at GlobalData, Sipps have grown in popularity due to the introduction of pension freedoms in 2015.

She said: "The demand for Sipps grew as customers wanted to take advantage of the new flexibility of defined contribution pensions, such as income drawdown and new rules on inheritance tax."

Since the introduction of pension freedoms in 2015, the number of people transferring out of their final salary pensions has been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution schemes and personal pensions in order to access their cash.

According to data from the watchdog, £20.8bn was transferred out during 2017, more than double of the volumes registered in the previous year.

Ms Cripps argued, however, that while the Sipp market has grown, it is suffering from large numbers of customer complaints.

She said: "According to the Financial Ombudsman Service's 2017 to 2018 annual review there were 2,051 new complaints made about Sipps, which is a 37 per cent rise year-on-year compared to the 1,493 made in the financial year 2016 to 2017.

"They surround due diligence failings, where customers have been investing in inappropriate nonstandard funds or were mis-sold a Sipp, as well as unregulated firms and introducers. Scandal has also surrounded inappropriately defined benefit transfers."

Ms Cripps noted, however, that it seems the market may be on the cusp of undergoing a tighter regulatory regime following new capital adequacy requirements in 2016 which required Sipp providers to hold higher capital reserves when a greater proportion of their Sipps are invested in higher risk, non-standard assets.

She said: “Tighter regulation is likely to impact how providers and advisers operate in the market.

“Despite this, the market is forecast to remain strong in size and to expand as the aging population seeks to consolidate their pensions and take advantage of the freedoms.”

Nevertheless, the Financial Conduct Authority (FCA) revealed last week it isn’t considering barring unregulated or non-standard investments from inclusion in Sipps.