Sipp providers lagging behind on drawdown

Sipp providers lagging behind on drawdown

The self-invested personal pension (Sipp) providers are missing out on business by not improving their drawdown offers, John Moret has said.

In its annual review of the Sipp market, published in FinalytiQ’s report, the principal at advice firm MoretoSipps said most of the money coming from defined benefit (DB) pension transfers has been invested in Sipps.

Data from the Financial Conduct Authority showed only a small part of these funds was likely to have been invested in annuities, he said.

Mr Moret said: “Given the market opportunity, it is all the more surprising that more providers have not taken the opportunity to enhance their income drawdown propositions.

“Most providers restrict withdrawals to certain days in the month. Many don’t report external service standards for paying income, nor are they able to report on the sustainability of client incomes.”

With a forecast of an inflow of £50bn into Sipps from new transfers by 2020, Mr Moret said drawdown “seems an obvious area where the more bespoke Sipp providers could gain an advantage over the technology driven platforms”.

But he said this would require investment in technology "which historically has not been a strength or priority for many of the specialist providers", given their fairly limited financial resources.

Matthew Rankine, sales director at Liberty Sipp, agreed there was a surge in demand from clients who want to use their tax-free cash alongside the drawdown income to create a steady, tax efficient income stream.

Mr Rankine justified the monthly payment system with “people being used to be paid on a certain date every month - from their days in employment”.

He said: “From a pension provider’s point of view, there are clear benefits to this system as it allows drawdown fees to remain incredibly low (£100 in most cases).

"Of course, we are working on ways for advisers to control retirement income quickly and efficiently via Liberty Sipp’s portal.

“We believe this will help both the adviser and client by keeping things simple, efficient and cost effective."

Martin Tilley, director of technical services at Dentons Pension Management, did not agree providers’ income drawdown propositions needed to be improved.

He said: “As an example, we pay pensions only once monthly although we can handle bespoke payments if required and have always operated this way.

“We administer our payroll internally so [we] have no service issues, and find that 99 per cent of drawdown recipients are perfectly happy to work around our monthly payment system.

“We could operate other more flexible payment dates but we have not had the demand to make it an automatic option.”

Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said "the problem with these technology upgrades is that they are very expensive”.

If the platform market can be considered as an example, then these investments could quickly escalate well into the hundreds of millions of pounds, he said.