The self-invested personal pension (Sipp) turns 30 this month, but it has come a long way since it was first introduced in 1990.
Launched as a relatively niche product to allow wealthy customers greater choice over the investment of their pension contributions, the past three decades have seen the Sipp move into the mainstream.
Different clients require different levels of flexibility and Sipps are not a one-size-fits-all product Claire Trott, AmpsHowever, in becoming more ‘the norm’ the intention for the Sipp has been lost in translation – the lines between a personal pension and a Sipp have been blurred, resulting in many investing in an unsuitable product.
“It is justified to say that Sipps aren’t the real issue here, and they are still a very valid and important part of the pensions landscape,” explains Claire Trott, chair of Amps.
“We need to be mindful that different clients require different levels of flexibility and Sipps are not a one-size-fits-all product.
“A Sipp, if appropriate, should be chosen for the benefits that the client needs and wants, not just because it offers all the options in the market, which is also why rating systems can be misleading.”
Mis-sold or misunderstood?
Recent years have seen claims made against Sipp providers by investors rise exponentially.
Data from the Financial Ombudsman (Fos) shows that the number of complaints referred to the Fos increased 86 per cent in 2018-19.
Stephen McPhillips, technical sales director at Dentons Pension Management, says: “There is no doubting that Sipps have earned an unenviable reputation in certain quarters over recent years.
"We only have to look at the plethora of recent provider failures, the subsequent impact on the Financial Services Compensation Scheme (FSCS) and continuing Sipp-related complaints to the Fos.
“Allied to these is the increased activity amongst claims management companies, eager to assist clients who feel that they have a valid claim against Sipp providers – be that around mis-selling, lack of and/or poor due diligence on investments and so on.”
Berkeley Burke is perhaps the most high profile of cases when it comes to the Sipp industry and the troubles it is facing.
"A few years ago a complaint was made against the provider that it had not carried out effective due diligence before a client transferred their pension into a Berkeley Burke Sipp and invested in a high-risk investment called Sustainable AgroEnergy.
The initial complaint was upheld by the Fos and Berkeley Burke appealed.
However, last year the Sipp provider entered administration, claiming it could no longer defend claims in court.
“Regardless of whether clients are tempted by surprisingly high potential investment returns, attractive side-benefits of making the investment or any other measure, the fact remains that some Sipp members made investment choices that turned out to be bad ones,” highlights Mr McPhillips.
“The question of whether the Sipp provider should have allowed the client to have made that particular investment is another matter.”
Greg Kingston, group communications director at Curtis Banks, adds, however, that the vast majority of well-publicised cases are old, and from a time when the regulatory guidance was vague and insubstantial.
“Although there have been some attempts to rewrite history in that regard, Sipp operator responsibilities have gradually become better defined since 2012 onwards,” he explains.
“The quality of business written since then will have sharply improved with most – but not all – Sipp operators.
"Before, in the majority of cases, let’s not forget it was often an authorised regulated financial adviser recommending the transfer. Many of those were allowed to phoenix from firm to firm, again and again, and dodge the responsibilities for their actions.”
A Sipp’s place
There is an ongoing dialogue within the industry around what actually constitutes a Sipp, but, in short, they generally offer more choice to clients than most other forms of registered pension schemes.
Ms Trott says: “There has been significant change in Sipp provider due diligence over the years to try and stop clients being disadvantaged by those trying to sell unsuitable or fraudulent investments.
“In most cases, Sipp providers won’t accept business from unregulated introducers at all now.
"This is a battle that I believe the Sipp market is now winning but clients should still be wary of any promises from investment firms or introducers of offers that are ‘too good to be true’, as there is always bound to be a catch.”
Fos data mirrors this view as between October and December 2019, there were 88 cases taken to the Ombudsman about Sipps, compared with 212 cases for the same time period in 2018.
New Sipps continue to be written in significant numbers, from simple platform-type Sipps offering a restricted range of investments, to full bespoke Sipps offering a wide range of investment options, including commercial property and hedge funds.
“There remains a demand for Sipps – in one form or another – throughout the industry,” claims Mr McPhillips.
“Advisers continue to recommend Sipps to clients where these fit their circumstances, needs and requirements.
"Indeed, depending on the complexity of the client’s needs, a Sipp might be the only vehicle that is actually suitable.”
Mr Kingston echoes these views, arguing that in spite of the negative headlines, Sipps still hold merit.
“The poor actions of a few should not prevent the still much-needed features, pricing and service differentials offered by Sipp operators,” he says.
“Today’s consumer, and adviser, must be ever more discerning to ensure that they make the correct choice of Sipp.”
