It’s often been said that the self-invested personal pension (Sipp) market operates on two tiers, but there is increasing evidence that these tiers have become somewhat blurred and in reality there are already more than you would imagine.
If we cast our minds back to 1991 and the release of the first Sipp products, they were intended for, and originally created for use by, entrepreneurial individuals who had the expertise and wanted to control their pension assets.
Early Sipps were for high net-worth individuals – often investment professionals, business owners and the like – but what did self-invested actually mean? A member could request a switch from one fund to another in almost any personal pension plan so it was taking the loosest definition, any pension that could be capable of self investment. Sipps were the new and sexy vehicle to hold in your financial portfolio, and it wasn’t long before the marketing departments of most pension firms were touting their products as a Sipp.
When the FSA first fully took the reins of Sipp regulation, it received 135 applications and, at its peak, their figures suggest that more than 175 Sipp operators were receiving business. These operators, many of which were new to the market, fought for market share in any way they could.
There were two main arenas in which they could compete. The first was the level of fees, so a fee war ensued as a result. The second was on asset acceptance, where the flexibility to accept more esoteric assets made them available to a wider investor and investment promoter base.
Although the number of Sipp operators has now dropped back by around 100, which is largely due to the recent effects of the FCA’s third thematic review and capital adequacy requirement, there is still a varied and diverse market. Historically, this has led to some issues. Surveys of the market became confused and the comparison between operators became difficult, causing confusion when clients (and, to some extent, IFAs), thought that some Sipps could do things that they couldn’t. Very clearly, all Sipps were not the same.
Therefore there were frequent calls for a split or redesignation to solve the issue, but this was never going to be easy from a legal definition perspective. Another problem was there were many hybrids or Sipps that could be upgraded from platform-based versions to the full Monty. We always had those that could and those that couldn’t. The best the market could do was to try and define products as platform and full Sipps or, in the more recent past, as those that hold only standard assets and those that can accommodate non standard assets.
Enter the FCA’s thematic review of 2012, which was at least in part, if not in its entirety, aimed at curbing the enthusiasm of some providers whose asset acceptance processes had fallen below acceptable standards.
The outcome of that review, which was summarised in the FCA’s letters to CEOs written in July 2014 (the title of which included the words action required) was the key catalyst for what was at first deemed to be polarisation of the Sipp market, but which has subsequently evolved into a more diversified set.