Each month, we ask our industry to answer one big question!
NICK BLADEN is head of pensions marketing at Skandia
The strong and established players in the SIPP market with a well-formed vision and business strategy have naturally embraced the changes, challenges and opportunities that A-Day has brought about. Through this ongoing period of market evolution, the key providers have continued to maintain the high levels of service that SIPP clients expect.
With the subsequent introduction of regulation to the SIPP market in April 2007, the focus on service and treating customers fairly has placed further emphasis on sound strategy and business process. For some providers, the move to full disclosure would have involved an enormous amount of work. In contrast, companies with a well-developed strategy and vision ensured that they were very well structured to accommodate the transition to full regulation with relative ease.
A-Day was a single day in history. The build up to it, however, did not happen overnight. With the introduction of regulation, the SIPP market will see the strongest companies surviving. Those who continue to invest time and energy planning and thinking ahead will be the ultimate winners, with the product and service proposition being at the heart of their overall strategy.
CLAIRE COURT is head of self administered pensions at Origen
The demands of the post A-Day SIPP world have meant that all providers have struggled to adapt in some form or another.
These issues have been caused by a number of things, including the complexity of the rules now applying to SIPPs, the Government's continual tinkering with the legislation, the huge demand for SIPPs as a retirement planning vehicle and the industry-wide shortage of well qualified staff to administer them.
However these matters will eventually resolve themselves. As each day passes we are gaining more experience of working in the post A-Day world and, as time goes by, advisers and clients are increasingly becoming able to make informed decisions about the contract features they need and the SIPP providers they prefer to use.
The SIPP industry is already a very different place from where it was five years ago and I am sure that when we look back in five years time it will look very different again.
STEVE FICE is chief operating officer at DSTi PAS
As a technology provider, DSTi is seeing an increase in enquiries from SIPP providers in three areas - illustrations, planning tools and service levels.
Many providers do not have appropriate illustration capability and this is generating a lot of activity for us at present. In particular we are seeing interest in illustrations for protected rights and illustrations during phased drawdown planning. As much of the money coming into SIPPs is transfer of funds from existing pensions, this has lead to interest in Transfer Value Analysis solutions, to ensure advisers are providing clients with appropriate advice when transferring to a SIPP.
The use of SIPPs as an alternative to annuities for income generation is driving significant interest in retirement planning tools that can handle the simplest through to the most complex retirement income strategy. The incorporation of stochastic modelling capability, including portfolio optimisation, is seen as a vital part of the adviser's toolset.
The rapid growth in the popularity of SIPPs has put enormous pressure on the operational capabilities of many providers, causing some to look at process management solutions, as implemented in many of the traditional pension companies. These solutions help to ensure consistent service levels are attained.
RICHARD MATTISON is business development director at PAL Partnership
I disagree. There is NOT a problem handling the demand for new SIPPs; the problem lies with the endless changes to regulations that places such a burden on providers.
The original A-Day proposal was that there would be one set of changes on day one and that pension regulations would not be interfered with. This would have allowed providers to focus on doing their job and dealing with the increased demand. Instead we have seen a constant stream of regulatory changes which shows no sign of slowing down. Each time this happens it diverts time and attention from the task in hand. It is time for the various government departments to stop interfering in our industry so we can efficiently administer our clients' pension arrangements to the satisfaction of everyone. Surely this would be the best way to treat customers fairly.
STUART MEIKLEJOHN is head of propositions at Fidelity FundsNetwork
The buoyed anticipation leading up to A-Day should have been a signal to the industry that demand for SIPPs was clearly set to increase. At Fidelity FundsNetwork, we anticipated the opportunities and benefits that A-Day offered. It's a shame that some businesses may have underestimated the changes it would bring about.
Post A-Day, different pressures are affecting different sectors within the market. The main winners appear to be the middle tier of providers who came to market with modern, 'full SIPP' products, utilising technology to keep costs low. For example, the FundsNetwork SIPP offers access to over 1,000 investment fund choices from 55 fund partners, dealing at NAV terms and with low admin charges.
This puts pressure on the niche and traditional SIPP providers, losing market share in the middle band of the SIPP market. They are also facing issues of increased operating costs following from new SIPP regulations implemented in April 2007.
At the lower end of the market, some life and pension providers had to adopt compromise 'hybrid' product solutions but the full SIPP approach can offer better investment options, at similar levels of pricing. The market is also seeing significant consolidation into the better quality plans, putting pressure on existing pension books.
These drivers are being alleviated by market buoyancy in the short term but are likely to determine the long term winners.
MIKE MORRISON is pensions technical manager at Winterthur Life
I am not sure that this is the case. SIPPs come in a variety of shapes offering different levels of investment flexibility. In this market the majority of investors will find a contract that suits their needs. A lot of individuals will find that they require only a limited range of investments others might find that they want more.
There has been some debate about "what is a SIPP?" with the purists suggesting that they must offer the full range of options. Let's not forget that SIPPs are a subset of personal pensions that offer "member direction" of investments and that some investors will not need the full range. The FSA's consideration of SIPP Financial Promotions in April this year makes interesting reading and illustrates some of the common problems.
New providers are entering the SIPP market and others are changing their direction to meet the demand. Anything that encourages pensions saving must be a good thing, whatever we choose to call it!"
JULIE MULVANNY is head of business development - individual pensions at Prudential
In my opinion, the majority of SIPP providers are coping well with the massive growth in new investors. Many were well prepared for this surge in interest with electronic trading and valuation platforms becoming a must-have both for the SIPP providers and their adviser partners.
I expect the vast majority of new SIPP investors to stick to 'simple' SIPP investments such as collectives and equities. As these can be traded and valued easily using such platforms, there doesn't seem to be a massive impact on servicing that we have seen in other markets.
Where potential problems are emerging is in the area of more complicated SIPP investments. As more people invest in SIPPs, inevitably a great number of investors will want to include commercial properties in their pension fund. Some providers have a flexible approach to this, while others operate a rigid process on what is an acceptable property. The expertise required to deal with property purchase is not widely available and due to the increasing volumes, some providers are beginning to struggle with these more complicated types of investments.
I think this will drive advisers to use a two-tier structure - specialist SIPP providers for the higher funds with more sophisticated investment requirements, and 'simple SIPPs' for new investors who simply want more choice for their pension fund."
SIMON O'CONNOR is retirement income head of product and marketing at Lincoln Retirement Income
A-Day has certainly galvanised demand for SIPPs. There are currently a quarter of a million plans in use and this number looks set to double over the next couple of years.
The success of SIPPs shows there is a change going on in how advisers and providers look at the retirement income market. The question is how will the industry meet the increased demand for retirement solutions? Our research among financial advisers has found that 50% want to see more innovative solutions launched into the retirement income market. SIPPs provide one route but can only take clients to 75 years of age. The industry needs to build on the success that SIPPs have had and now look to focus on the pre-retirement, at-retirement and in-retirement markets.
Lincoln Retirement Income has recently launched Lincoln i2Live, a unique range of flexible options to take clients through each stage of retirement planning. SIPPs are really just the first stage and the industry now needs to work with advisers to provide consumers with solutions that see them right through to a secure income for life
MARK POLSON is head of corporate business at Scottish Life
I don't think anyone would challenge the view that there has been an explosion of interest in SIPPs. However, there is a strong challenge as to whether this explosion is real or a Hollywood special effect. There are two issues - firstly, a huge amount of the business being recorded as SIPP is money flowing into insured funds inside hybrid 'deferred SIPPs'. In other words, they are no different to what have previously been simply "personal pensions".
Secondly, there is little new money coming into the market, so most of the 'explosion' is a dance of monies from one provider to another. That aside, most providers appear to be managing - there may be some issues with small specialist providers who run their business on a paper basis, but the bigger providers do seem to be coping. More pressing is the question of whether certain product providers can deal with the massive outflows of money from their back book, particularly where they are encouraging existing clients to move to new deferred SIPPs to gain greater margin. New business may be looking healthy, but the claims and transfer teams are working overtime and there are reports of frustrations at delays.
PAMELA REID is head of Citi Quilter's Bristol office
For investment business placed through discretionary fund managers, there is no evidence of problems in responding to the increased demand. We have the capacity to take on new investment business; once the funds reach us, it is our responsibility to make the investments to meet the members' objectives. A delay in investing would be tactical and not a result of constraints in capacity. Our IT links and reports prove that we can supply valuation and daily data which meets the requirements of the administrators. A trend that we have seen is to provide more of these links which act to cut down costs to the member and improve efficiency for all concerned. Greater volumes makes our investment into these links worthwhile."
TIM SCHOFIELD is technical consultant at Alexander Forbes Financial Services
Currently it appears that a few SIPP providers admit that they are experiencing difficulties while others do not appear to have a problem. Our own experiences with providers do not reflect the statement that providers are struggling.
Our industry has, at times, a "fragile" reputation and therefore it is important that those providers that are experiencing problems of this nature should make sure that they take prompt action to remedy the situation effectively and quickly. SIPPs have been a relative success story for the industry recently and it would be a pity to turn triumph into disaster in such a short space of time.
A relatively small proportion of SIPPs currently take advantage of the full investment potential that a SIPP can offer and the majority of SIPP investment is still in pooled investment funds. While many of these can be held under non-SIPP pension products, the "deferred" SIPP has emerged as an excellent vehicle to achieve a wide spread of investment in pooled funds, while maintaining the potential to truly self-invest as and when required. This is especially so in plans where charges are not made for the facility for self-investment unless that facility is used.
Thus, with the majority of new SIPPs in fact being "deferred" SIPPs, if a provider has properly invested in the required resources in terms of technology and manpower, there is really no reason why it should not be able to cope with increased demand.
DAVID SEATON is director at Rowanmoor Pensions
I believe that most SIPP operators experienced service problems in 2006 and early 2007 as a result of pensions simplification, the huge demand for SIPPS and regulation changes. Provided that they responded by investing in staff and systems, the 2006 problems should be behind them, staff should be trained and fully working within the business and there should be no service issues.
Some operators seem to have dealt with service issues by refusing to carry out the more complex administration transactions. The worrying trend we have seen from many of the larger operators has been to narrow their acceptable investments. Some refuse in-specie contributions, some refuse unquoted shares and some even make commercial property purchase exceedingly difficult. The reasons given vary but in most instances seem to be around their ability to offer a streamlined service.
My belief is that a SIPP operator should allow all permitted investments which do not give rise to charges or fines being levied against the member under current legislation. It is wholly unacceptable to call a product a self-invested personal pension and then refuse to invest as the member directs for no good reason other than the operator will not administer it. If this trend continues then the client is not being treated fairly and this will damage the reputation of SIPPs and the industry.
ANDREW TULLY is marketing technical manager at Standard Life
A ten-fold increase in demand for new SIPPS - in little over 18 months - was bound to place a strain on new business administration. The long-term winners will be those providers that can consistently deliver excellent service to both advisers and customers.
Companies that invested in robust technology, strong processes and with access to a pool of skilled people will have coped best. Those whose systems were not built with scale in mind will continue to struggle, regardless of how many staff they now employ. As SIPPs are now a mainstream service, advisers need to be confident that providers can process new business and serve existing customers with excellence. Ambitious providers may try too hard to offer all possible investment permutations but this may lead to complex processes and rapidly increasing work volumes which often result in meltdown.
As the SIPP market becomes more competitive with the inevitable downward pressure that this will have on prices, providers are going to have to drive efficiencies within their businesses to maintain margins and compete. Scale and the financial firepower to invest in new technology will become increasingly important.
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