Self-Invested Personal Pensions (SIPPs) - October 2012

The FT this week published an indepth report on the SIPP market which makes very educational reading in the light of the regulators recent concerns on UCIS.

The SIPP market is turning a corner. It has long been seen as a boom market in the industry, with provider numbers rising in line with rapidly growing assets under administration. SIPPs went from being a bespoke pension option to a must-have for the mass affluent.

The promise of flexibility, total control over investments and the visibility of assets drew many in – arguably many that would have been better suited to a personal pension – but regardless they wanted to be part of the trend.

But stuttering wider economic growth and investors having fewer assets means the market is steadying. Far from declining, it’s just not rising at the previous rollercoaster rate, but this still poses a problem.

Providers have set out their stalls based on booming growth; they rely on double-figure gains each year, with revenues to match. Firms rushed to get their offerings to this market, meaning some are now bulky, not focused on rising costs and have spiralling staff numbers.

As a result, the FSA has stepped in. It has made noises on capital adequacy, mooting raising it from current low levels and potentially linking it to the risk of assets in a book of business.

When coupled with the recent motions on investment suitability, you could end up with a very different SIPP market. The proposed list of approved SIPP investments has been met by enthusiasm from some – who welcome the clearing up of confusion – and consternation by others, who worry that the freedom SIPPs once had will be curtailed.

But the market has been through change before: when it was first regulated in 2007, when the platforms market grew, and now with the onset of RDR. The market can adapt and change but there is no doubt some providers will not make the cut, while others will flourish. It will be a true case of survival of the fittest.