The move toward individual pension arrangements could lead to the amalgamation of Sipp and SSAS plans and advisers must be prepared to drive through these changes
I have recently returned from a wonderful and inspiring holiday in Australia, a country that seems to have provided a stable platform for anyone saving for his or her retirement.
My escape from the UK was timely as it allowed me to reflect on the significant developments that had taken place here in the months before I went down under.
The developments I am referring to were the Sandler and Pickering reports, and in this article, I want to set out some thoughts on the potential impact on one small but growing part of the pensions marketplace ' Sipps.
The Pickering report was disappointingly thin on detail. Indeed, the only apparently relevant recommendation is the suggestion that in future the number of money-purchase arrangements should be reduced from more than fifteen to just three. These three would be:
• Occupational defined benefit pensions
• Employer-sponsored money purchase arrangements
• Individual pension arrangements (including top-ups)
Behind this proposal is a potential radical shake-up in the pensions framework as we know it today.
The danger is that while the Government consults and reviews and produces tonnes of paper, there is even more excuse for investors to delay taking important decisions on retirement planning ' against a background of major uncertainty in stock markets and solvency concerns.
In the context of the Sipp market, there are at least four areas where change could have a major impact:
• One individual pension regime
• Investment rationalisation
• Contribution limits
• Removal of retirement benefit limits
If only one individual pension arrangement (IPA) is a genuine aspiration then we could see the disappearance of Sipps and SSASs, as we know them today ' along with personal pensions, executive pensions, Section 32 plans and FSAVCs. In their place the single new regime ' individual pension arrangements ' might have a new legal structure and flexibility in investment, a new maximum funding regime and simplified limits on emerging benefits.
Currently there is a significant difference in the legal structure between Sipps and SSASs. Indeed, Sipps come in various legal forms and until recently a Sipp was not even defined in pensions legislation. However, regulations that came into effect in April 2001 defined a Sipp broadly as arrangement(s) under a personal pension scheme in which the individual investor is able to direct the way in which contributions are invested.
Essentially, like all personal pensions, a Sipp is established by an authorised provider ' insurance company, bank, building society or unit trust company. This contrasts with a SSAS where an individual trust can be established by a limited company.
The Revenue exercises control on an SSAS through the requirement to appoint a pensioneer trustee with statutory responsibilities. Looking to the future it seems unlikely that both regimes will be needed ' perhaps this will lead to a widening of organisations allowed to establish an individual pensions arrangement ' a welcome development.
On the other hand this might mean the end of the pensioneer trustee requirement. A model much closer to the legal structure of stakeholder schemes seems likely.
Turning to the area of investments, a similar rationalisation seems possible. The emphasis will probably be on collective schemes ' and in this context the recommendation in the Sandler report regarding a level playing field for individual pension arrangements between insurance companies and other investment managers is relevant.
Beyond this if consolidation of the Sipp and SSAS regimes is being considered will it be Sipps or SSAS that are taken as the role model and who will be responsible for monitoring and reporting on investments? The answers to these key questions may well determine the future for these two regimes.
Various suggestions have been put forward regarding contribution limits ' including a move away from earnings-related limits to lifetime limits. All sorts of outcomes are possible here ' but again the opportunity exists for major simplification, with potentially the removal of maximum funding tests and actuarial reporting requirements.
Finally, there is the prospect of removal or simplification of retirement benefit limits ' with the exception of the politically sensitive tax-free lump sum ' a complete separation of the drawing of benefits from retirement and a consolidation and simplification of the two current drawdown regimes.
I believe this would be warmly welcomed by both the industry and those approaching retirement trying to fathom out what to do at retirement. There is, of course, further activity underway in this area as a result of the consultation document on annuity reform earlier this year ' and some FSA-led activity around income drawdown.
From the above you will gather that the scope for radical reform in the Sipp and SSAS market is enormous. If, as seems likely, the Government take the opportunity, on the back of this rationalisation to relaunch the IPA then there is a genuine case for the introduction of a self-select IPA based on the best of the current Sipp and SSAS regimes.
We also have the prospect of a Pensions Green paper to be unveiled later this year (a date yet to be announced).
In the meantime, I believe there is an opportunity for current providers and administrators in the Sipp and SSAS market to work together and promote the benefits of the two current regimes creating a model for a new-look IPA.
Let us ensure that we drive the changes rather than just responding to them. Keeping it simple may yet provide a major boost to the future of the self-invested market.
John Moret is managing director at
Personal Pension Management Limited
2018 list revealed
56% of employers want extension
Advisers need to delegate and outsource
Bill nearing final stages
Ramifications for advice firms