As self-investment personal pension plans tip into their 30th year of existence, demand for the wrappers continues to rise despite a number of headwinds for both providers and advisers.
Developments at the start of 2019 have shown little let-up on this front, even by the pensions industry’s standards. Events this year include the belated introduction of the pensions cold-calling ban in January, and MPs’ decision to undertake a debate about contingent charging for defined benefit transfers.
Most would agree that there is merit in having a discussion on this subject, at least. But a ban on such charging would reduce the number of advisers able to conduct DB transfers, which could potentially shrink the market.
Meanwhile, intermediaries, providers and the Financial Conduct Authority are now all too aware of the risk of large numbers of consumers purchasing Sipps without taking advice. With many providers still trying to shake off the headaches caused by the capital adequacy requirements, the regulator’s bid to address this problem could have serious consequences for Sipp firms.
One other recent development also has implications for Sipps. The FCA’s long-awaited Retirement Outcomes Review was published in January, and includes a key proposal for firms to implement default investment pathways for non-advised customers, to help them make better decisions about how their funds are investing. This comes after the regulator found that a third of non-advised customers have invested drawdown monies solely in cash.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “Our proposals on investment pathways will help non-advised drawdown consumers select from four relatively simple choices, designed to meet their broad retirement objectives so that they can maximise their income in retirement.”
Cool response to pathways
Further research contained within the report, however, suggests Sipp providers are far from enamoured with the idea; only 18 per cent say they would implement pathways, while 39 per cent say they would rather restrict their drawdown offering to advised consumers only, with the remaining 42 per cent unsure.
James Jones-Tinsley, self-investment pensions technical specialist at Barnett Waddingham, says this shows that the FCA is taking a ‘one-size-fits-all’ approach, particularly in the imposition of default investment pathways on pension providers, regardless of their client profile or the type of arrangement offered.
He notes: “Our response to last June’s consultation requested that Sipp operators should be exempted from their ‘saving consumers from themselves’ pontifications, to avoid considerable effort and expense in a narrow timeframe, to create nothing more than a white elephant. We shall stress this argument again in our response to its latest consultation paper. Whether the FCA is all ears remains to be seen.”
Greg Kingston, group communications director at Curtis Banks, voices concerns that there is no special allowance for Sipp operators in terms of implementing the default investment pathways.
“This contradicts the self-invested nature of Sipps, but more worrying is a proposed exemption from these pathways for smaller providers. This risks preserving a higher risk of worse customer outcomes among the providers that the regulator has most concern about for other reasons,” Mr Kingston says.