TIPs have an increasingly important role to play in helping trustees select the right fund manager says Ian Price
Who is the target customer for TIPs? Do you see this changing as the product develops? i.e. guarantees come at a cost.
The target customers for TIPs are trustees of occupational pension schemes, and also the trustees of SIPPs. We do not really see that this market will change, even with the development of new products such as guarantees. All that I believe will happen is that more business will be placed through TIPs as the more sophisticated products are developed over the short to medium term.
What are the key benefits of TIPs?
The key message here is that, historically, the investment focus of trustees has been very benchmark driven. As the bear market, changing legislation and liability driven investing have arisen, trustees are beginning to take a far more sophisticated approach to their investment strategy. With that has come the realisation that fund manager selection is increasingly important, and TIPs can be an ideal way of sourcing managers in different asset classes capable of delivering 'alpha'.
With the changing occupational pension market, trustees are now looking to gain as much value as they can without taking undue risks with the assets that they manage. TIPs give trustees a far wider choice of fund managers, funds and different styles in order to drive value for the members of their schemes.
We have seen an increase in interest in TIPs since A-Day, when we began offering regular premium plans.
Within the SIPP market we are finding that clients who have purchased commercial property are now looking for a home for the rental income that comes in monthly.
What effect will the use of guarantees have on the TIP market?
The TIP market is still very much developing; with the changing environment for occupational schemes, obviously trustees are looking more closely at how they can manage the assets to match the liabilities they have within their schemes.
As more sophisticated guarantees become available to match these liabilities, the TIP market will be the place for this type of product.
What role does the TIP have in retirement planning?
Whether you are a trustee of an occupational pension scheme or a trustee of a SIPP, it is your responsibility to ensure that you produce the best returns possible for your members, without taking undue risks. The TIP market is, and will continue to become, key as far as retirement planning is concerned. Trustees need to fully understand the implications of using TIPs and how this can benefit the members over the medium to long term.
It is clear that longevity is one of the biggest issues facing us all in the pensions industry. Increased performance will go some way towards helping the issues that we face here; I believe that the TIP will become a key product for both occupational and self invested schemes going forward.
Up to now, TIPs have shown steady but not spectacular growth. Is this likely to change any time soon?
This market is continuing to grow, but I would agree that the pace is slow. As an increasing number of trustees realise the impact of not actively managing the funds they have available, then I believe that this market will start to see increased growth over the next 5-10 years.
The SIPP market has had spectacular growth, and I see the fact that the TIP market will see good growth in the years to come as a by-product of this.
What factors have prevented the TIP market from growing more rapidly?
If we look specifically at occupational pension schemes, the trustees have their own investment managers. There has been reluctance from some investment managers to look more closely at using TIPs as a method of gaining value for the trustees. It is clear, however, that some of these investment managers believe that they can still offer the widest choice available by not looking at TIPs as a way of diversifying investments for trustees.
The role trustees have to perform is a very difficult one; it is all about managing the assets and the liabilities. If you add to this the changing face of occupational schemes over recent years, in that most final salary schemes have had to close to new members, this has not made the role of a trustee any easier.
Only now are some trustees beginning to look further afield to decide what assets they can use in order to continue to improve or protect the benefits for their members.
ABOUT THE AUTHOR
Ian Price is divisional director at St James's Place
Ian joined St James's Place in September 2004 as head of pensions, and was promoted at the end of 2006 to a divisional director. Prior to joining, he spent over 26 years with Zurich.
His role means that he spends a lot of time out of the office talking to clients, partners and journalists.
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