The Big Question

Each month we ask leading industry figures to answer one big question...

Following the regulation of SIPPs, it was said we would see provider consolidation. Do you think it is starting to happen now?

Association of Member-Directed Pension Schemes’ response

To date, SIPP regulation has not been a driver for consolidation, but it is a concern that should regulation become too burdensome, pushing consolidation, this will affect consumer choice.

Consolidation has chiefly occurred due to companies looking to diversify into what they see as a new and potentially profitable market.

The Retail Distribution Review (RDR) is still considered to be the major driver for change as SIPP operators reflect upon their distribution models and try to understand where IFA support for SIPP products will be in 2013.

Whether these changes will drive consolidation or whether the perceived costs of increased regulation will challenge the viability of some SIPP operators is yet to be seen.

However, there is no decrease in the popularity of SIPPs and increased flexibility in income drawdown will only heighten interest in specialist pension provision.

Andy Bowsher is director of self-invested pensions at Xafinity

It’s one thing to launch a SIPP, but it’s quite another to run it profitably. Access to capital, capital adequacy requirements, FSCS fees, increased regulation, and ongoing low interest rates have all put pressure on those with low (or negative) margins.

Size is also a key issue, both in terms of operational scale but also financial backing. Xafinity SIPP is fortunate enough to have both of these.

While we continue to grow our SIPP business organically, we are actively looking for the right opportunities to partner with or acquire the right SIPP and SSAS businesses.

Peter Carter is head of product marketing at MetLife UK

The resilience of the SIPP industry illustrates how successful the vehicle has been over the past 20 years. One recent estimate put SIPP assets now at £90bn.

The uptick in technology and market forces will probably cause the industry to segment into two general categories: those focusing on technology to embrace the mass market at a relatively low cost, and another group evolving into more specialist, service-led providers offering bespoke offerings.

SIPP providers who do not have a clear strategy and do not understand their service proposition are likely to face difficulties. The consolidation process therefore probably has further to run.

Robert Graves is head of pensions technical services at Rowanmoor Pensions

The rationale behind the predicted consolidation was that, as regulation is an additional overhead expense, smaller SIPP operators would not have the economies of scale to support this additional overhead.

However, it is generally accepted many aspects of regulation essentially formalised what was existing good business practice and so regulation was not such a leap in overhead expenses.

Nonetheless, regulation is an additional overhead and as with any other overhead, the beneficial forces of economies of scale do come into play.

With the SIPP market continuing to be buoyant, it is possible that operators’ business models are able to cope with the additional expense of regulation.