With the anniversary of A-Day just passed, SIPPs have come under the spotlight once again amid fears that they could be the latest subject of claims of mis-selling. But are IFAs really to blame for ill-advised SIPP purchases?
The media hype around SIPPs as pension regulations were being simplified led certain investors to buy into them sometimes in spite of advice that they were not the right vehicle. This determination to invest in SIPPs, in the face of recommendations to the contrary, surely proves a case more of mis-buying than of mis-sellling.
I have certainly come across people who think they want a SIPP because that's what they've read about in the press. They like the idea of managing their own pension investments, but fail to take into account the associated costs and whether the potential benefits merit the sometimes high outlay.
SIPPs can be costly to set up, with high annual charges, and are really only of interest to people who want to devote time to managing their own financial affairs. There are huge numbers of investors out there paying into a SIPP, for whom it's a completely inappropriate product and in many cases, it's no one's fault but their own.
Indeed, SIPPs had been around for some 16 years before A-Day, but the hype of pensions simplification last year brought them to the fore - with a lot of providers jumping on the bandwagon to supply a product the market seemed to be clamouring for. Yet the pull, it seems, has come as much from investors as from providers pushing their products at the risk of mis-selling.
Regulation of SIPPs under the Financial Services and Markets Act will come into effect from April 2007 and the market has already reacted with the number of providers thinning out over the previous 12 months, from over 150 to more like 100. The financial services industry in general has suffered damage to its reputation as a result of earlier mis-selling scandals. Tighter regulation is only to be welcomed if it protects people from any such danger. However in this case, I believe some individuals are themselves to blame for ill-advised investments.
For many investors, a simple stakeholder pension is perfectly adequate. For others, a SSAS may be a better suited investment vehicle. I'd urge all investors to seek regular advice and review from a genuinely independent financial adviser, and above all, heed their recommendations before leaping into a costly and perhaps ineffective investment.
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