The UK Self-Invested Personal Pensions (SIPPs) market is entering an interesting new phase as consumer awareness rises and adviser clients start to demand more from their financial planners.
For advisers and providers, this will pose multiple challenges, from maintaining service standards as volumes rise, to ensuring they can meet their client’s investment needs.
Add in the very real prospects of market consolidation, the ongoing battle for distribution and the pace of change in the SIPPs market over the next few years, and all the activity in this space to date will seem sedate in comparison.
SIPPs allow investors to wrap up their investments into a simple and clear platform – much like the IMA (Individually Managed Account) or SMA (Separately Managed Account) of markets internationally – and are growing quickly as an attractive alternative to the relatively clunky pensions being offered in the UK.
Sales of SIPPs have rocketed in recent years, with many mass affluent consumers transferring their existing pensions from their restrictive and frankly punishing pensions into SIPPs – driven in the main by financial planners.
Meanwhile, research by CoreData Research UK of both UK consumers and independent financial advisers (IFAs) has revealed some interesting developments in the UK financial services market.
The good news for IFA’s is that consumers recognise the importance of pensions, with 75.4% of them stating pensions were important for retirement saving and a further 42.5% stating pensions were a vital part of their financial planning.
However, consumers hate the lack of flexibility most pensions currently offer. They dislike the lack of flexibility in taking benefits from a pension and the inability of bequeathing pension assets to their families.
There is also a general shift in attitudes taking place, as the baby boomer generation approaches retirement. This generation 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 regulations, it is arguable that the boomers are reflecting the idea of annuitisation outright, after all this generation it appears is determined to go out disgracefully.
But despite this issue, 77.1% of consumers surveyed have a pension they are paying into, while only 5.6% were without a pension.
Among the latter, the biggest single reason not to have a pension was a lack of trust in the pensions industry (38.5%).
After twenty years punctuated by scandals such as 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.
Yet, the message of alternatives is only trickling through.
The research reveals 42.3% of consumers had heard of SIPPs, but 38.5% said they had not and 19.2% were not sure.
Given are 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 they have a SIPP.
Extrapolation from the survey results to the population as whole gives a total SIPPs figure of around 350,000, compared to industry estimates of 200,000 to 250,000.
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 plus. 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.
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 a driver for Sipps, as many consumers reporting using their Sipps to bring together existing pensions.
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 that downplays 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.
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 SIPP 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? Only time will tell.