Christine Hallett discusses the growth in the corporate SIPP (CSIPPs) market
In the increasingly competitive world of work, today's employer is under greater pressure to ensure the benefits they provide contribute directly to influencing employee behaviour, generate a maximum return on investment and help win the war for talent.
Employees too are becoming more sophisticated in terms of their benefit expectations, looking for increased choice and value. Increasing diversity, in particular age and lifestyle, are helping to fuel a change in the provision of pensions in the UK.
The government's desire to improve financial education in the workplace (one of the drivers behind the development of personal accounts) is also increasing interest. Employers are increasingly looking to initiatives like Corporate SIPPs (CSIPPs) - sometimes referred to as Group SIPPs - to help ensure that employees understand the options available to them and the consequences of their decisions, as they will, ultimately, be responsible for them. The CSIPP is a SIPP designed for company pension schemes.
Today, communication is often about managing expectations and perceptions. An increasing number of employers are moving their pension schemes into more flexible arrangements, such as CSIPPs, because their choice, flexibility, high perceived value and attractiveness make them better vehicles for achieving this.
Workplace pension provision
The recent announcement that several high profile companies have introduced CSIPPs for their employees is the first major sign that the workplace pension arena is about to change dramatically.
An increasing number of companies are looking at CSIPPs as a more flexible and effective addition or, in some cases, an alternative to their existing DB, DC or AVC pensions schemes.
The flexibility and structure of CSIPPs also make them an ideal vehicle for harmonising legacy schemes and consolidation of pre-existing plans. According to the latest CIPD Reward Survey, they are now becoming more popular than hybrid pensions schemes and often used as replacements for DB pensions.
As with any new initiative, the main challenge for CSIPPs is to ensure the right balance between needs and affordability. More choice and flexibility coupled with an increasing 'consumerism' approach to marketing such products will require better education, advice and monitoring for individuals, employers and advisers.
There may also be concerns about transfers from insured personal pensions to insured CSIPPs if all the investment strategy is with the chosen insurance company funds.
Truly independent CSIPP frameworks have been established to use the open plan nature of the SIPP, giving flexibility of choice across asset classes and different investment houses. They are more likely to be looked on favourably by the FSA as the transparency of transfers is very high.
The focus should be on the end result required for individuals and mapping out the best alternative routes to achieving them. For SIPPs this means moving towards a view on wealth creation as opposed to just retirement planning. For instance, using SIPPs to house shares is not just a matter of planning for retirement but also the best use of current tax legislation.
The main driver for introducing CSIPPs is future-proofing pensions and greater integration between share schemes (including SAYE) and pension schemes. They are seen as a way to improve the value of shares, as well as further boosting employees' savings for retirement, as there is tax relief on the value of the maturing shares going in.
Designed to complement existing pension plans, CSIPPs also provide employees with additional opportunities to save for retirement through self investment bonus and salary sacrifice, a wider range of investment funds, and the significant tax savings offered by SIPPs. They are also a good vehicle for maximising contributions up to annual allowance as well as offering choice and flexibility when drawing benefits, for example providing alternatives to annuity purchase.
With a growing interest in commercial property investment as an alternative method of creating wealth over the long term, CSIPPs offer a tax efficient vehicle linked to pension provision.
As with any pension, the benefits of CSIPPs can be enhanced through salary and bonus sacrifice. Employee NI savings can be used to 'boost' the contributions to the SIPP. Company NI savings can be used to offset any costs associated with the set up and running of the CSIPP.
The most important point for advisers is to make sure the CSIPP provider you choose to partner with has been involved with CSIPPs for some years and not just entered into the market in order to be fashionable. Their CSIPP should be registered as a pension scheme as defined under Part 4 of Finance Act 2004.
Some providers use CSIPPs as a means for promoting only their own investments. A good CSIPP provider will be open and willing to advise on all investment options, including using your own preferred advisers.
To be a true CSIPP the schemes should include all HMRC allowable investment choices including quoted and unquoted shares as well as commercial property. Watch out for restricted investment choices.
Communication is key, so ensure your prospective partner has the expertise and experience to work with you in all communications (from presentations and handbooks to newsletters and platforms) and are tailored to your needs and brand.
Ask them to demonstrate their systems and procedures and demonstrate they can accommodate your client's pension, payroll and HR requirements. A good test is to find out if they can deal with one single payment per month to be applied across all employees.
In order to integrate the CSIPP into your client's reward and benefits strategy, make sure the CSIPP provider has the necessary consulting expertise and technical team to cover all aspects of advice from pension's strategy to HMRC legislation.
It's easy to hide charges in a scheme such as CSIPP so make sure they have a transparent charging structure.
Employee experience is important as is flow of information. A good CSIPP should have a full range of illustrations available, preferably online.
CSIPPs by their nature are both powerful and complex. These types of benefits need to be managed in a structured and pro-active manner.
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