Protected rights are just one of several catalysts for growth in the SIPP market, says John Moret
Given the huge growth in SIPP sales post A-Day what are your future growth expectations for the market?
There are catalysts that will drive growth on every front and we may even see this growth accelerating in future. For instance there are issues surrounding defined benefit schemes and we're still waiting for amendments to transfer value regulations. We've also got the legacy insurance company products that are coming under increasing scrutiny and could look to transfer into SIPPs. The value of this could be somewhere around £100 billion. If you take that with DB schemes which could easily be £200-300 billion and then look at protected rights which could be up to £100 billion then it's a considerable amount of money. Another market that is developing quickly is the whole retirement options market and the emerging third way concept. I'm convinced the age 75 rule will disappear at some point. That will also fuel growth in the SIPP market as people will effectively hang on to their SIPPs for longer. If you put all those factors together then you've got a figure of about £500 billion. I think the market is currently close to £50 billion so that's ten times growth in five to ten years which looks very attractive.
Poor transfer times have been highlighted as a real issue for SIPP providers. How do you feel this issue is being addressed?
To be honest I'm not sure it's on anyone's radar. There's been some attention paid recently to OMOs and annuities but on transfers customers seem to be being forgotten. There are indications of organisations such as ABI looking at it but I don't think it's getting the attention it deserves particularly when you look at the whole issue of TCF. I feel there is a need for more action and we are reaching the point where maybe it's time to use the stick rather than the carrot.
What lessons have you learned from the SIPP regulation process?
It has confirmed that regulation is not something to be taken lightly. Because Suffolk Life is a life company it has been regulated for years so the step change hasn't been that great. It's the independent providers, particularly smaller ones who will find the learning curve steepest.
How much demand do you think there is for the use of protected rights in a SIPP?
You only have to read the advance notice from some providers who plan to have the product when permitted. It will pose challenges for some of the life companies who have up until now been happy to maintain the status quo and see money go into life company funds almost on a default basis. I think with the draft regulations that have come out it looks like protected rights and non protected rights will be on the same footing and it will be interesting to see how it develops. I like to think we've got a bit of a head start.
What safeguards do advisers need to put in place to ensure that SIPPs are only sold to those who need them?
The majority of advisers won't be affected as they are already doing the suitability tests. The danger is that all the focus is on cost. While that is one factor it isn't the only reason people are advised to take out SIPPs. There are other advantages such as having all your investments under one wrapper - from the reporting and transparency point of view it's hard to put a value on that but there must be one. Advisers have to be careful when assessing which products are suitable for their clients as anything that tarnishes the SIPP reputation can only be bad news.
Given the huge growth in the deferred SIPP market how will the role of the niche provider evolve over time?
When you look at the costs these providers face coupled with the continuing downward pressure on price then I don't know how many of these small providers will survive over time. I would be amazed if in five years time we have the same number of independent providers that we have today.
How will the Retail Distribution Review (RDR) affect the SIPP market?
SIPPs are ideally suited to the post RDR type distribution market as SIPPs go hand in hand with wrap platforms. Overall if there's a flourishing professional market then retirement advice will be a key ingredient and SIPPs fit very comfortably in this space.
What challenges do advisers face in the current SIPP market and how can they deal with them?
One of the issues is flexibility versus risk. It's a very interesting area and you have different providers with very different views. Some providers will invest in anything that's been permitted but you have others such as Suffolk Life who say that while we are flexible there are some things we won't do because the risk to the consumer and ourselves is just not worth it. This debate will go on for a while and for advisers in terms of assessing providers they shouldn't just hone in on price or necessarily be swayed by the provider prepared to do anything because in some circumstances that could be a recipe for disaster. Advisers need to look beyond the label on the can and look at the ingredients to ensure their recommendation is suitable for the client.
ABOUT THE AUTHOR
John Moret is director of sales and marketing at Suffolk Life
John is often referred to as "Mr SIPP" having spent much of his working life since 1990 promoting the advantages of SIPPs. He was the inaugural chairman of the SIPP Provider Group (AMPS) and has worked closely with Government and regulators on a range of issues.
ABOUT SUFFOLK LIFE
Suffolk Life is one of the UK's leading providers and administrators of self-invested personal pensions (SIPPs), having established over 10,000 SIPPs with gross assets of around £2.5 billion, including commercial property. The new Suffolk Life MasterSIPP offers genuine self-investment of protected rights and exceptional investment flexibility for non-protected rights as part of the same scheme. With the protected rights market estimated at up to £100 billion, Suffolk Life sees this as the next big opportunity for SIPPs.
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