Self-invested Personal Pensions have captured the imagination of advisers and consumers and sales have grown rapidly Originally sold as a high end solution for higher rate payers a research report from Mintel argues that the next phase of SIPPs growth is likely to result in demand for SIPPs from mass affluent consumers. Many IFAs have adopted SIPPs as one of the most useful tools in retirement provision. However, while the costs of investing in SIPPs have fallen in recent years, advisers may still be concerned that SIPPs may not be suitable for recommendation to less affluent clients.

In this live WebTV show, brought to you by Legal and General, our independent pension expert John Greenwood and Head of Pension Development, Anne Dunlop from Legal & General will answer any and all questions about Individual SIPPs. Greenwood has been frequently voted ‘Pensions Writer of the Year’ by the ABI and Headline Money, and is the author of the FT Guide to Pensions and Wealth in Retirement. Dunlop joined Legal & General in 1987 and has worked in sales and product development in both the Individual and Corporate Pensions market.

John Greenwood and Anne Dunlop will also examine whether the evidence from Mintel carries any weight and challenges the reasons why advisers may be reluctant to recommend SIPPs to mass affluent clients. Log in to submit your questions live, or alternatively click here to submit them ahead of the show.

H: Jayne Constantinis, host
A: John Greenwood, independent pension expert
B: Anne Dunlop, Legal & General

H: Hello I’m Jane Constantinis and welcome to the Personal Finance Show. Now Self-invested Personal Pensions – or SIPPS - celebrate 21 years of existence next month, and a new report by Mintel suggests that SIPPS could be attractive to a wider range of customers. But can SIPPS move from being a niche product for high network individuals and what will be the impact on personal pension plans? Well joining me to discuss this is John Greenwood from Corporate Advisor Magazine. He’s also the author of the FT Guide to Pensions and Wealth in Retirement. Also joining him in the studio today is Anne Dunlop, she’s head of pension sales development at Legal and General savings. Welcome to both of you. And in fact I’d like to begin John with a question for you from Dennis Gilgallan who says “give me one good reason why I should recommend a SIPP to my unsophisticated client who works as a roofer rather than a basic stakeholder scheme?”

A: Well I think the reality is that there isn’t an answer to that yet. He’s absolutely right, you would give him a stakeholder, there’s no question that he would have any need for the SIPP functionality at all

H: Anne what about you?

B: Yes

H: What’s your answer to him?

B: Well I tend to agree as well, unless he’s got considerable amounts of investable assets, only then would it be appropriate

H: So is it just about level of assets – is that what the decision should be based on?

A: No it’s level and type of assets isn’t it?

B: It is, type of assets is equally important

A: He might have shares actually

B: Well that’s right

A: If he had shares –

B: He may be a good saver already

A: Yes

B: So it –

A: But generally it’s not going to be –

B: But as a rule the stakeholder would more than likely be more appropriate

H: Ok. And in fact Doug Brodie has sent in a – I think it’s a comment really. Rather succinct – “all SIPPS are personal pensions yes or no?” End of debate!

B: Well I would tend to agree a personal pension is – well a SIPP is a personal pension but just a wider range of investment, so they are one and the same

A: Whether it’s the end of the debate is another thing. Obviously Doug’s right, yes – but yes there’s obviously – SIPPS are also a subset, a very distinct subset of personal pensions and obviously that’s why we’re here to talk about them

H: Ok that’s an answer to you Doug Brodie, thank you for sending that in. Now let me begin asking you this Anne, if you wouldn’t mind – do you think SIPPS may have been oversold since A-day?

B: Well yes I think there’s a very good possible that they have been oversold since A-day, however I still think there’s sort of room for expansion in the SIPP market. You know it’s dependent on the client’s circumstances as to why they’re actually buying a SIPP. If they’ve got significant assets under management or monies there already, they may have more than one pension pot that they wish to consolidate. It could mean that you know charges are lower or it may mean that they need a greater investment control, so there are other reasons than just the volume of sales that have been done since A-day with all the hype, making people more aware of personal pensions and SIPPS since then

H: What’s your view, you write about this for a living, what’s your view?

A: Well yes I’d sort of add to that that you ask yourself have there been people sold SIPPS who would have otherwise been in other forms of personal pension with lower charges? Yes if that’s the case and they’re not using the extra functionality that SIPPS have, then I think you can conclude that they have been oversold, because people could have been better off in something else. If you’re not actually using the SIPP functionality, and you’re paying more in some circumstances – not all, but in some circumstances – then you know that’s going to affect your – that’s going to affect the amount of pension you’ve got at the end. You know the one thing you can influence is charges, and there’s no point paying extra for something you’re not using

B: Yes I would agree entirely with that, however I think we have seen the lowering of charges and different product developments which have made more attractive as well to a different range of people. You know we’ve seen that there’s become more simple, more investment choice, flexibility that’s there, and that’s valued by a lot of IFAs and for their clients, so we may see that going forward it won’t be about mis-selling but more appropriate features within the product

H: Is that the word that you’d use, “appropriate”?

A: Yes, yes absolutely

H: Let’s just have a think about the FSAs thematic review of - of pensions transfers on the growth of the SIPP market. Do you think that makes transferring clients into a SIPP harder now than it was before the review?

A: Yes obviously if the FSA’s looking down, scrutinising an area, advisors are going to think twice about doing it, and it will in some cases slow people down. That won’t – or reduce their tendency to do it. That have – that doesn’t mean that advisors shouldn’t do it, and even the charges, I mean I mentioned charges earlier, however just because something’s got higher charges in the product itself doesn’t actually mean it’s bad advice. If you’ve got say 10 or 15 personal pensions and you’ve got to go and get a fund value for each of them every year when you do your asset allocation, your balancing of your portfolio, if you the IFA are going to end up charging your client for all of that time, you may as well – it may be that the client is better off if all of that is consolidated in one place. You can do your job more quickly but there may be a slightly higher charge in the product itself. But the end result may end up being cheaper for the actual client

H: Anne what about you?

B: Yes I think the thematic review on switching in the first place actually clarified for a lot of advisors, so although there may have been more concerns about advising on SIPPS, I think we’ve got just as long with personal pensions, we’ve got a clear guideline as to what should be looking for when actually advising. So on one hand I do see it maybe appear more difficult, but I think with clarity and the type of products that are available, there is an opportunity with back offers, systems being cheaper, that sort of control in there to help an IFA make the correct decision

H: Let’s look at a question now from Jonathan Boyd whose the editor-in-chief at Trustnet . Long question – “what does experience thus far on the part of providers and distributors suggest about the ability of SIPPS customers to make wise, long-term investments into funds, and if SIPPS growth does continue into the mass affluent area of the market, will there be a need for even more freely available tools and information to make those choices?”

B: It’s an interesting question and what I do think is that whether those for the mass affluent market move into the SIPP market or remain in personal pensions with just insured funds, having an informed choice is key. Portfolio tools – possibly something else as another helping hand, but I don’t think we’ve got experience yet of how long term decisions this will impact on the information and advice given to them

A: When it comes to investment returns, I think that’s what Jonathan’s getting at, I think is – how do the investment returns compare between those who have gone down the SIPP route to say the personal pension, and through the execution only route? I haven’t seen any research as to which have done better I think it would be incredibly interesting – it’s probably quite a short time scale anyway at the moment to get anything concrete out of – but I would be interested to see it. When you look at the execution only SIPP part of the market, I’m sure - well I’m not sure but I would very much expect that some people have got it wrong, because they haven’t been advised, done quite badly, but even – even if you look at those taking a wide range of fund choices, and – in advice SIPPS it could be the case that they haven’t done too well because the equity markets have performed so badly to be honest since A-day that – that people in more cautious funds in – in the defaults in regular personal pensions may have done better than those who have maybe taken a more adventurous approach, and then for those in execution only who are the people who are going to need the tools, which I think Jonathan’s talking about there – those people are going to find that I would expect, if you talk to the people at the pension’s institute, choosers are losers, those people who’ve made their own selections can get it wrong and can find that they haven’t done as well as the professionals. But I don’t know, I haven’t got any facts to prove that

B: No neither have I but I think – in general it’s difficult making a choice, whether it’s an informed choice or a correct choice, it’s difficult without information

H: Let’s think for a second about execution only SIPPS – do you think they’re going to become more popular?

A: Shall I have that one?

B: Yes

A: I mean I – one of the great things that execution only SIPPS have done while they’re a small part of the market, they’ve been an absolutely fabulous advert for SIPPS generally, and pensions and investments and taking control of your retirement, as saving, because they’ve just been a very good story to sell, all of the national personal finance newspapers have got on board with it and have loved SIPP stories, we’ve got to the point that taxi drivers talk about having a SIPP so you know maybe they don’t need one – but and so – and that has been driven a lot by the execution only side of things, and by – and it sort of explains to people how a pension is just a tax wrapper plus some investment funds and in certain circumstances plus some advice, so it’s been good for the sector. How much more distance there is to go on that, I’m sure there will be more as we as a society become more mature investors. We’re still pretty a way behind the Americans at the moment in terms of personal investment and attachment to the stock market. I expect that to continue, but it will still be niche. I myself filled in the paperwork for a SIPP and was going to go all gung-ho and transfer stuff in there, I never actually finally got round to doing it in the end. It’s not the simplest thing in the world to do. I’m not saying it’s complicated but it’s not the sort of thing you do like falling off a log

H: What about you, Anne – taxi drivers’ favourite?

B: Tax driver’s favourite! I think as John just rightly said, he didn’t do it either and I think when you look at the Mintel report which you referred to earlier, I think there’s less than 10% actually have an execution only SIPP so it’s maybe been good for the industry and raising awareness with pensions but in my view it is very much a niche market, and except for the most knowledgeable of investors I don’t really see that that market will grow particularly

H: Ok. And moving from that to the small, self-administered schemes – are they better than SIPPs for high net worth clients?

A: Well better’s a –

H: Yes

B: It depends

A: Yes better’s a difficult word, I mean the SAS side for me, the situation there is you’ve got a big family situation or a complex financial planning means between generations, and – and / or personal property – sorry residential – commercial property in there can be cheaper to pass commercial property between generations or get members in and out of a small scheme through a SAS than through a SIPP and a scheme pension does mean you can get the money out more quickly, but only for certain situations. You can still get the money out of a pension pot if you’re trying to avoid your 82% potential ASP tax charge pretty quickly through a SIPP as well but you can get it a bit quicker through a SAS

B: Yes and I think very much so it depends on what you’re trying to achieve as a group, whether you go down the SAS or the SIPP route, but from a retirement options point of view for draw down, you know the same benefits are available, whereas you’ve got the scheme pension on the SAS which John mentioned, and I think that is the key differences

H: Let’s take another question that’s come in from Matt Eaton who says “would you say that SIPPS are going to be more mainstream for the professional classes who might have been a bit put off by property as a means of capital growth?”

B: Well that’s an interesting one. I don’t know if I’ve got anything to back it up in the main, but I do think that those who were attracted to buy-to-let for example, the appeal of residential property, whether it’s before the u-turn, will have actually gone down that route and maybe looking for a vehicle such as a SIPP in the future, you know when they want to liquidate those assets for example. So it may be that a different entry into the SIPP market will happen and that will tend to be the professional classes, and for property syndication, that sort of thing

A: I mean as an alternative to property obviously equities and bonds and other sort of linked in investments are more typically held through SIPPS. Is there a sweep towards that? Well these asset classes haven’t done any better, have done worse actually over certain periods than property itself, so I wouldn’t see that personally as a particular driver myself

H: What about family SIPPS? A number of new providers coming in to the market last year, do you think they’re set to become more attractive?

B: Well I think it’s more the mainstream providers that have come into the market, and I think we’re keeping a sort of watchful view on what you know the HMRC will consider about family SIPPS using, you know the opportunity to litigate, you know against the family estate for example. At Legal & General and Suffolk Life in particular, you know we have it under review to see whether that will be going in the future, but at the moment we’re just keeping a watchful brief as I said

A: Well that will be interesting. Yes I mean the hot topic there is to me, it seems anyway the disproportionate allocation of investment returns from one part of the family to another, like usually down through the generations. That’s seems – that sort of borrowing from the final salary situation, a method of passing wealth between generations into the, into the private SIPP, so the private pension world, and it seems to me that at the moment those players have come in and doing it the revenue’s not saying that they don’t like it so it seems to be established

B: Yes and although they’re not actually saying that, I think why we’re being watchful is it’s so much about, you know we’ve had anti for stalling, we’ve had so many other – you know making sure that those who are advising, and accountants are not actually getting involved in anything which could come back to bite their client at a later stage. So watch this space

H: Yes and talking of watching the space, let’s think ahead to post-May and what you think might happen should there be a Conservative government, let’s think in particular about income draw-down, what’s your feeling about that?

A: Well the Conservatives say they want to look at the age 75 annuitisation rule. I’m going to some event next week where the Policy Exchange, one of the Tory think tanks, Mark Hoben is going to be looking along with others at basically what they want to do in this particular arena. They’ve come out with an announcement but they haven’t given any detail yet as to how it’s going to work. I know they’re in the process of looking at their models, which models will work and I think they’re getting the sort of house in order to decide exactly what they want to do, and they’re currently sounding the market out as to what would work and – but the clear indication is they do want to do it. So yes if you are thinking, you know if you’re faced with going into ASP then you may want to hold off for a few months if that particular obstacle presents itself to you, you might want to wait and get into ASP

H: What’s your prediction Anne?

B: I don’t actually have a prediction but I do think we have – we have the current legislation to work with at the moment, and if your client needs and has a desire to go to ASP, in case they find that they wait a few months as we know in this industry legislation can take a long time to change, so certainly I would hedge our bets on who gets in and what they actually come up with but certainly the annuitisation at 75 has been a hot potato for years

A: Yes. I think they feel like they’re pushing an open door in terms of the industry, there’s quite a lot of wide backing for it. As you say, is it going to be their priority in terms of legislative time when they come in? Probably not. So – but you know if you don’t need to buy that annuity now then you may want to, but obviously you’re going to have to look at each client’s circumstances

B: Yes I think that’s a good point

H: We’re all going to be watching this space. I’m afraid we’re out of time, thank you very much for that, very interesting. I hope it’s been useful and helpful. If you’d like to know more of course you can go to the legal and General Website which is legalandgeneral.com. Thank you for watching, see you again soon. Bye bye