Q&A: Ray Chinn on SIPPs

The head of pensions at LV= tells Retirement Planner about how he thinks the SIPP market will evolve

What is the outlook for the SIPP market in 2012 and beyond?

All of the indicators point to continued growth for SIPPs. What is more interesting is where this growth is likely to come from. The SIPP market is now becoming segmented into three clear areas. At the top end, there are the bespoke SIPPs. There will be some growth here, but the challenges around different asset classes and risk mean that this is the area of the market likely to be growing least quickly.

Mid-tier SIPPs, which include packaged propositions for example, offering links to discretionary fund managers and the like will see strong growth as advisers continue to look to outsourced investment solutions.

This trend for investment outsourcing will also drive growth in the collectives-based SIPP segment with increased use of risk graded portfolios and multi-manager -solutions. This segment of the market also includes more traditional personal pension-type offerings where low cost will be a driver of additional sales.

The final area is the direct-to-customer market. With the Retail Distribution Review (RDR) fast approaching, I expect to see execution only offerings driving aggressive growth.

The FSA has had a strong regulatory focus on SIPPs over recent times.Is this likely to continue and what impact will this have?

There are a number of outstanding “threats” in terms of regulatory scrutiny – from the likelihood of increased capital adequacy requirements to challenges around greater disclosure in the run-up to the RDR. On the greater disclosure issue, the FSA has postponed plans to introduce more onerous regulatory burden around key features illustrations while it consults further on this in 2012.

My expectation is that this is a temporary respite. Although the industry has lobbied on this point and had some success in pointing out that the wide range of investments makes a “standard” projection virtually impossible, I still expect the regulator to place more demands on SIPP providers going forward.

Some providers are ahead of the game here and it is worth advisers looking at what SIPP providers can currently produce in terms of illustrations to get a feel for who is going to struggle with future demands. Capital adequacy provisions are potentially a bigger threat. Some SIPP providers’ business models are already under pressure due to reduced margins on cash accounts. If these providers need to set aside more capital to meet FSA requirements, this will be an additional burden.

The advice for advisers and clients here is to get a clear understanding of the financial strength of SIPP providers as a key part of any recommendation.

With the growth of wraps and platforms, where do SIPPs fit?

A variety of strategies are being adopted here. Some SIPP providers have extended their SIPP capabilities into other investment types to provide a wrap-style -proposition themselves.

Others are developing closer links with wraps and platforms to ensure that advisers can link the SIPP investments with ISAs to give a holistic view of the client portfolio.

The FSA has given a clear steer that the use of a single wrap/platform is unlikely to meet the independence requirement post-RDR and, in this respect, advisers using an off platform SIPP can avoid this potential pitfall.

It is also completely possible that the costs of using a combination of on platform and off platform vehicles could be beneficial to the client.

The final area where the SIPP providers can demonstrate an edge is in terms of pure pensions expertise. Many of the wraps and platforms are struggling with some of the complexities of the decumulation market – which is one reason why they are keen to link with SIPP providers.

Beyond this some of the legislative change coming up in April – for instance, fixed protection changes to the lifetime allowance and removal of protected rights are opportunities which only true pensions specialists can help advisers capitalise on.