While TIPs undoubtedly have their benefits it will be a difficult road ahead if they are to grow in popularity says Justin Modray
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 customer is someone who wishes to access life company funds within their SIPP. This includes both specific funds, such as specialist protected funds, as well as multi-fund life company platforms such as Skandia.
In practice the advent of fund supermarkets and wraps means most investors have little reason to consider a TIP, as they already have a very wide investment universe at their fingertips.
Some investors might be tempted by protected or guaranteed funds, such as that offered by The Hartford, although there's no such thing as a free lunch and investors should understand the potential catches of these types of fund. I certainly can't see many investors using a TIP to access conventional life company funds; avoiding these funds is a key driver for using SIPPs in the first place!
What are the key benefits of TIPs?
I think TIPs primarily offer a benefit to investors seeking specialist life company funds not otherwise available in their SIPP/SSAS, such as The Hartford protected fund mentioned above.
There may also be a case for investors using a SIPP/SSAS that doesn't offer a fund trading platform to consider a TIP. Accessing such a platform through a TIP is likely to improve flexibility, cost effectiveness and transparency.
Of course, they could transfer the existing plan into a more flexible SIPP, but this may not be viable if they hold commercial property for example.
What effect will the use of guarantees have on the TIP market?
It's probably the main reason the TIP market may survive. It will be interesting to gauge the extent of investor appetite for this type of product moving forwards. I'm not convinced from an investment point of view, but can understand the importance that some investors place on guarantees and getting a peaceful night's sleep.
What role does the TIP have in retirement planning?
Primarily as a facilitator to accessing specialist/guaranteed life company funds.
Up until now TIPs have shown steady but not spectacular growth - is this likely to change any time soon?
Only if demand for The Hartford style products soars and equivalent types of funds (that may be held in conventional SIPPs) do not materialise in the near future. If the latter does become a reality then I suspect the TIP market will suffer and potentially contract.
There's also a risk that some TIP providers offer silly commissions to advisers as a carrot to use their offerings. History unfortunately suggests that both life companies and advisers have not been averse to this on occasion.
What factors have prevented the TIP market from growing more rapidly?
Aside from the specific situations outlined earlier there's been very little reason for most advisers to recommend TIPs to their clients. I don't see this changing and if anything the increased development of SIPP platforms will, if anything, marginalise TIPs.
ABOUT THE AUTHOR
Justin Modray is head of communications at Bestinvest Brokers
Justin started his IFA career at Chase de Vere Investments in 1995. Prior to that, he worked in television commercial production after graduating from the London School of Economics. Following six years at Chase de Vere he took a couple of year's break from financial services, during which time he worked in Switzerland. On returning to the UK in 2003 he joined Bestinvest, where he continues to advise clients and look after marketing and press relations. Justin regularly provides expert investment commentary to the national press, radio and television.
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