Although sales of Sipps have rocketed in recent years, research among UK consumers shows that many are still unaware of what a Sipp is, while others think advisers add little to their investment performance.

These findings are from research carried out by CoreData Research UK among UK consumers and independent financial advisers (IFAs) on their views of pensions in general, and Sipps in particular.

More than 1,000 consumers and several hundred advisers took part in the survey, giving a valuable picture of how these two groups see both Sipps and pensions.

The consumers surveyed were predominantly mass affluent, defined in this case as those with liquid assets of between £20,000 and £250,000. This group, estimated at between 5.7 million and 6.3 million in the UK, forms a burgeoning market for Sipps set up by IFAs or served directly by providers.

The good news is that this group recognises the importance of pensions, with 75.4% of consumers saying they are important for retirement saving. A further 42.5% said pensions are a vital part of their financial planning.

But against this, the survey found consumers strongly dislike the lack of flexibility in taking benefits from a pension and the inability to bequeath pension assets.

Experts may point out there are now a range of alternatives to a conventional annuity, and that many people have misconceptions over how annuities work. But it seems these complex messages are not getting through to the public.

There is also a general shift in attitudes taking place as the baby boom generation approaches retirement. This group has been a powerful force for social change as it has matured, and will have a more demanding set of expectations towards retirement than preceding generations.

Rather than misunderstanding the current regulations, it could be this generation is rejecting the concept of annuitisation outright.

After all, a generation that wants an active retirement enjoying hobbies and holidays is probably prepared to be more active with its retirement finances. It may well associate annuities images of a pipe and slippers by the fire.

But despite the annuity issue, 77.1% of consumers surveyed have a pension they are paying into, with just 5.6% not having a pension.

Among the latter, the biggest single reason not to have a pension was a lack of trust in the industry (38.5%).

After twenty years punctuated by scandals such as Robert Maxwell, personal pension mis-selling, Equitable Life’s sorry saga and now the collapse of some final salary schemes, this finding is hardly surprising and it is in line with previous research CoreData has carried out among UK consumers.

Probing further, it emerged that 42.3% of consumers had heard of Sipps, but 38.5% said they had not, while 19.2% were not sure. Given that Sipps were a niche product until relatively recently, this is not too surprising. To Sipp marketeers, virgin territory on this scale is surely an enticing prospect. And among those who have heard of Sipps, market penetration appears to be relatively low, with only 19.2% saying that they have a Sipp.

Extrapolation from the survey results to the population as a whole gives a total Sipps figure of around 350,000, compared to industry estimates of 200,000 to 250,000. However, it is worth considering the usual estimates understate the number of Sipps in use, as they may exclude Sipps set up by private banks, wealth managers and those set up directly with execution-only brokers. In any event, Suffolk Life’s John Moret’s much quoted prediction of half a million Sipps by 2010 could soon be a reality.

Asked if they were likely to invest in a Sipp in the next 12 months if they don’t already have one, 9.1% said this was likely. Allowing for those who then fail to carry out this intention, this approximates to Sipp sales in the next 12 months of 50,000+. Who will pick up this business? It’s an interesting question, as growth rates appear to differ in different parts of the Sipp market, with hybrid and online Sipp providers doing better than full Sipps, according to recent reports.

In its research, CoreData asked consumers who they saw as the best provider of a Sipp. For those with no pension but who had heard of Sipps, specialist wealth management firms were seen as the best provider, with an IFA as the best source of advice.

But for respondents with a pension but not a Sipp, the best provider was seen as a specialist Sipp provider, ahead of traditional pension providers, internet-based providers, fund management firms and specialist wealth management firms. IFAs were also seen as the best source of advice.

For both groups, major banks rated badly as potential Sipp providers – food for thought for Barclays and other bancassurers looking at expansion plans into pensions.

Asked what influenced them to take out a Sipp, 42.9% of consumers said it was recommended by their IFA. Against this, 38.6% said they read about Sipps in the press and 37.1% said they found about Sipps online. The combination of the latter shows the boost Sipps have received since the initial plans for pensions simplification were announced. As one Sipp provider commented, the hype about residential property, followed by a last-minute U-turn, gave Sipps plenty of publicity without the administrative hassles that would have surely followed.

An important overall finding is that Sipps are becoming a ‘bought’ product, as consumers learn about them and decide they need one. Anecdotal evidence from some advisers bears this out, as they report new clients saying: “I want a Sipp”, rather than “I want a pension”. In some cases, advisers may decide another pension product is more appropriate, but that is another debate.

When looking at reasons for the popularity of Sipps, respondents said they saw Sipps as more flexible than traditional pensions. Aggregation was also cited as a driver for Sipps, as many consumers reported using them to pool together existing pensions.

In terms of Sipp investment, pooled equity funds are the most popular asset for consumers, with 81.4% of Sipp investors holding them. Cash and deposit funds, stocks and shares, plus pooled property and bonds funds are also reasonably popular investments.

When asked about the most important factors in deciding where to invest, nearly 70% of consumers put their own research and investment views as the key factor, well ahead of those putting their financial adviser’s investment views first (21.4%).

To add to the findings downplaying the role of the adviser, when asked what was the most important factor in their Sipps’ investment performance, the views of the adviser was put first by only 1.4% of consumers, compared to 42.9% for general investing conditions, 20% for investment manager performance, 18.6% for the consumer’s input into investment and 17.1% for having an investment strategy tailored to their choice.

In addition, whereas over 80% of respondents agreed with the statement ‘I feel in control of my Sipp investments’, only 52.3% agreed their adviser does a good job in managing their investments, and only 47.6% agreed their adviser uses the latest investment ideas.

So there is considerable evidence from the research that advisers may not be fully meeting the needs of those consumers now taking out a Sipp. One conclusion for advisers could be that although good service and administration are vital to Sipps, they need to make sure the investment element is also managed well.

Research on adviser views, also in the survey, partially backs up the importance of investment. For example, 51.8% of advisers thought better investment solutions are a key factor for new Sipp providers. And when asked about future trends, over 60% of advisers rated use of Sipps as part of a wrap account as significant.

These two findings could point a possible way for advisers to win back consumer support for their investment abilities; better investment solutions, perhaps as part of a wrap offering.

Is this likely to happen? Time will tell, but the Sipp market is entering an interesting new phase as consumers find out more about Sipps and demand more from their advisers. For advisers and providers, this will pose multiple challenges, from maintaining service standards as volumes rise, to ensuring they can meet their clients’ investment needs.

Add in prospects for market consolidation and the ongoing battle for distribution, and the pace of change in the Sipps market over the next few years could make the recent past seem relatively sedate.