Fiona Murphy asks: How are platforms evolving to meet the retirement space?
At the last Henry Stewart conference held in March 2013, MoretoSIPPs principal John Moret projected there would be 1.5 million SIPPs by 2018. Platform SIPPs would account for half of this growth.
The massive growth in platform usage will not just be linked to SIPPs. Income drawdown, annuities and auto-enrolment are all likely to inform innovation in the future.
Cofunds head of proposition development Martin Wigginton says: “The strength of the platform is giving choice of wrappers as people accumulate to reach their target money for retirement. As the government does less to provide for people and there’s the move to a flat rate state pension, you’re very much on your own, above a certain level of income in retirement. People are waking up to that and are starting to target pots of private money more openly than in the past.”
Platform versus SIPP
So how will the sizeable growth in platform-based SIPPs change not only the SIPP market but the personal pensions market as a whole?
Nucleus chief executive David Ferguson says: “The wrap market is eating the SIPP market. The SIPP market offers a huge amount of flexibility, but wrap platforms offer that same flexibility and much more. You can use ISAs or directly held assets or an offshore bond to plan for your retirement. In the wrap platform, if you do that via a SIPP, you’ve got to hold that via a pension as well.
He continues: “I think the SIPP market grew massively between 1995 and 2005. Since then, you’ve seen far more growth in the platform market. Over time, the wrap market will continue to eat the SIPP market. A business like AJ Bell, which is successful in the SIPP market, has started to develop more platform type characteristics.”
However, all is not lost at the bespoke end of the SIPP market, James Hay Partnership chief executive Alastair Conway says: “The bespoke SIPP market will keep on growing, but I don’t think it’s going to exponentially grow. It will have periods that will grow quicker or slower depending on regulation or the attraction of underlying asset types. If commercial property is attractive, that market does a little bit better. If it’s not, it will be quieter.
“The big growth area for SIPPs is the money that would historically have gone into the insured environment. It’s now going into the open architecture, the simple type SIPP. That’s where the big growth area has been in the past and there’s huge potential for growth. Before, an investor might have had a few insurance type products dotted around, now we’re generally pulling those together in one place using open architecture.”
It is clear that the lines are beginning to blur even between platforms that are collectives and ISA led and those with SIPPs at the heard of their proposition.
Conway adds: “I think there isn’t a huge difference between something that’s wrapped in a pensions wrapper and something that’s wrapped in a collectives and ISA wrapper. Ultimately it’s an end investor looking to build up assets for the future, particularly retirement. The main difference comes in the help, support and guidance needed. The investor or adviser in the SIPP world tends to be more complex and there’s a greater requirement or need than for those just putting their money in a collective.”
One area ripe for innovation could be the way annuities sit on platforms. In March, Nucleus launched an annuity portal available through their platform. Clients will be able to apply for an enhanced annuity through the wrap and will have access to annuities from a panel of providers including Just Retirement, LV= and MGM Advantage.
Conway says something that is unclear but will evolve over time, is how to provide guarantees through a platform.
He says: “Rather than thinking about annuities, where I think it’s going to get more interesting is will platforms provide guarantees of either capital or income, against the platform assets. At the moment, what Nucleus is saying is if you’ve got £300,000 and you want to put £100,000 into an annuity to buy a guaranteed income, you could leave the other £200,000 invested, that’s one way of doing it.
“The market is pretty embryonic in this area. As the next two or three years pan out, it will be interesting to see whether platforms roll out some kind of way of providing that guarantee or security of income or capital, around the flexibility of the platform. Putting annuities on there is one way. There might be better ways of doing that, such as wrapping guarantees around the whole platform assets, or giving an underlying guarantee of income and linking that in some way to the platform.”
However, Almary Green managing director Carl Lamb says: “I don’t think annuities on a platform would work. Are you relying on a platform to put everything on? The only way it would work is if the platform put all annuities that were available in the market on any one point in time. That would be very cost prohibitive. Otherwise, it would have to be a very limited option.”
Income drawdown is also a potential growth area for platforms. Conway says: “Income drawdown [via a platform] is growing quite rapidly from a very small base. Some platforms enable you to do it, some can’t. Some require you to go back to a product provider. It’s patchy about how easy it is to use.
“The requirement for flexibility for the end investor in retirement has become greater. What has really caused the problem is the low underlying interest rate for the GAD tables, which perhaps slightly undermines how attractive the drawdown process is. Annuities are poor anyway as well, but it’s slightly stifled the growth one would have expected in a world where people are trying to be more flexible about how they blend in their platforms and other assets. I think it would have grown quicker had we not experienced the difficulties we’ve faced around valuations. As interest rates edge back upwards again, growth in that area could accelerate even faster.”
However, for Lamb there are significant issues within income drawdown via a platform.
Lamb says: “Ease of administration depends on the platform, it has to be said some are far better than others. The technology, service, and the cost are all factors. From our perspective, we don’t have any clients in drawdown through the platform because it just adds an additional cost to the overall process that you don’t need. I think the biggest development will be ultimately when the market will find its own level, where costs are sourced downwards” he adds.
Aggregation and auto-enrolment
Aggregation of assets via a platform is a developing trend among people coming up to retirement.
Wigginton says: “We see platforms being the aggregation point for people who had pots of money and will be bringing them together. We’re finding more people in their fifties with all these policies from different life companies. You need an adviser to put them together in one place and save the customer money.”
An area set to revolutionise growth in pension assets on platforms, is auto-enrolment, where customers will one day be able to aggregate all their savings in one place, including their workplace pension.
Ferguson says: “As the assets grow in auto-enrolment, I can imagine platforms will find a better way to integrate with that service, so people can stream their income from one place.
“One thing we offer is if you’ve got money coming out of an ISA and a pension, you get one income payment every month. You’ll start seeing more integration of that. Over time, People will want to see their NEST or auto enrolment payments alongside that.”
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From 6 April 2019