As pioneers of SIPP, James Hay had good reason to believe it was on to something very big. But we couldn't have predicted the seemingly exponential growth that the SIPP market has shown in recent years.
Pensions Management’s 2007 SIPP Survey confirmed the trend with its estimate of £29 billion of assets administered through 235,000 SIPPs.
Growth is happening on two fronts
First, customers are investing more in their SIPPs. Over the 12 months to June 2007, our average new SIPP investment increased by over 14% from £280,000 to £320,000. Much of that gain is fuelled by the introduction in 2006 of greatly increased allowable contributions for tax relief and many more clients are consolidating their previous pension arrangements to benefit from the investment flexibility of a SIPP.
More significantly for the longer term, the SIPP demographic has broadened, bringing in new customers in addition to the traditional High Net Worth individuals. Our own studies show that the market now comprises 4 key sectors:
1. Directors/Partners of businesses, aged 50 plus – the traditional SIPP market.
2. Middle management/those starting new businesses (30s and 40s).
3. Group SIPP for managers up to senior level – as an alternative to Final Salary schemes.
4. Occupational scheme members seeking a more flexible and private alternative to AVCs for topping-up their employers’ schemes.
Much of the appeal is practical
With the decline of Final Salary schemes, employer-funded SIPPs can help attract management talent. High-earners contributing large sums want their pension money under their own control, not their employer’s. And SIPP can be a dynamic element in a new business. For example, a young media-based company has used a group SIPP, funded initially by the founder’s transfer values from previous schemes, to buy a succession of premises for its operation, trading up at a profit as staff numbers have expanded. And the directors know that the property will still be theirs, through their SIPP, even when the company has been floated on the stock exchange.
But SIPP growth is part of a general trend towards open-architecture, investor-controlled solutions, which also accounts for the rapid growth of Wrap business – itself accelerating the shift to SIPP.
As people have become wealthier, often through inheritance in a buoyant property market, their expectations have risen, and so have their concerns around pensions, savings and investments. They want exclusivity, but they also work extremely hard, and need peace of mind that their savings, investments and pension funds, are not only safe but under their control, particularly with regard to risk. They are looking for ongoing advice that is geared to achieving their personal and financial goals and aspirations, and those of their families. Most people’s houses were built for someone else: but a SIPP portfolio .can provide the freedom to pursue an investment strategy uniquely tailored to the individual’s retirement goals and requirements .
We recognised these new markets early
And set out to meet their needs. The simple online eSIPP and the economical Select SIPP now complement our flagship Private Client SIPP – probably the ultimate SIPP for handling complex portfolios and assets. We have also invested significantly in our platform, with online management – including free next-day switching and bulk, cross-client analysis and switching – and some of the most competitive fund price discounts in the market.
But our prime investment, which has made James Hay the UK’s No 1 with over £12 billion under administration in more than 36,000 SIPPs, has been in our teams of professionals who provide service and support to IFAs.
On the ground, our regional Business Development Managers provide hands-on support to IFAs at every stage, while our Technical Support Unit is one of the most experienced in the industry, noted for its speed of service and the efficacy of its tax and inheritance tax planning solutions. These include our unique Spousal Bypass Trust, which allows a client’s spouse or partner full access to lump sump death benefits, while ensuring that the benefit will not form part of their own estate on their death, or be assessable as capital for long term care.
Responding to the needs of a changing market with the right mix of products, service and support for the IFA is critical, and some smaller providers may not retain their independence under the additional burdens and expenses imposed by regulation. But, all in all, the SIPP market is more vibrant than ever and its future is looking very bright indeed.
Has run Cautious Managed fund since 2011
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Invested from 2006-2011