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How pension freedoms affected Sipps

This article is part of
Guide to Sipps

How pension freedoms affected Sipps

Post pension freedoms, clients have been engaging more with their pension options but how has this affected Sipp advice?

According to Elaine Turtle, director for DP Pensions, the flexibility of Sipps has attracted more interest post-pensions freedoms. 

She comments: “The fact Sipps are more able to deal with flexi-access drawdown (Fad) and uncrystallised funds pension lump sum (Ufpls), which came about with the pension freedoms, have made advisers and their clients move to Sipps.

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“A lot of the old-style pension products were not able to move fast – or even not at all – to use the new pension freedoms.”

This is because Sipps had been “offering drawdown and flexible drawdown for many years”, explains Chris Jones, founder of the Rock Consultancy.

Data from the Financial Conduct Authority backs this up – Sipp sales rose from 146,567 plans in the quarter before pension freedoms (Q1 2015) to more than 205,000 a year later. “I’m sure pension freedoms have driven a good part of that rise”, Mr Jones says.

Greg Kingston, head of communications, product and insight for Suffolk Life, agrees: “Fad has seen a huge take-up now that pension savers have the flexibility of no longer being forced to buy an annuity.

“Flexibility has driven that growth, although Fad is no longer unique to Sipps.”

Martin Tilley, director of technical services for Dentons Pension Management, says: “I suspect there has been a growth in Sipps post-pension freedoms, as logically old policies that would have matured would not have permitted the use of flexi-access benefits.

“Furthermore, if a transfer to a pension vehicle had to be made, Sipps are quite a logical choice.”

He says as the pension freedoms were all about giving access, control and responsibility to the consumer, Sipps already did that. 

Mike Morrison, head of platform technical at AJ Bell, comments: “I’d expect to see Sipps continue to increase in popularity as more people stay invested for longer and take advantage of the new flexible withdrawal options.”

Indeed, according to Stewart Davies, chief executive of Momentum Pensions, “record transfer values and an elevated concern around the viability of some defined benefit schemes have led to increased inquiries and activity for financial advisers”.

Research carried out earlier this year by Momentum Pensions found more than 51 per cent of advisers anticipate an increase in client enquiries relating to the opening of new Sipp accounts in the coming year. 

Three-quarters of those advisers expected business would rise 40 per cent as a result. 

Increased contributions

Several respondents to this guide cited higher inflows into Sipps since the pension freedoms came into force in 2015. 

DP Pensions’ Ms Turtle adds: “We have continued to see clients paying in more contributions due to the flexibility presented by pension freedoms, and how they can take their funds or pass these on down the generations.