• Have senior management with a poor understanding of regulatory requirements and individual responsibilities;
• Have poor governance and lack oversight of the conduct of their firms;
• Have inadequate risk identification processes, poor management information and risk mitigation planning;
• Hold insufficient capital to absorb unexpected liabilities;
• Undertake inadequate due diligence of introducers and investments;
• Overlook conflicts of interest; some Sipp operators are acting as the administrator, adviser and investment provider or providing another pension such as a small self-administered scheme, without sufficient controls to manage these conflicts.
It would take many more pages to unpick the likely requirements behind the findings. For now, it is safe to assume the Sipp industry needs to pull its collective socks up from a variety of different heights. The fear that parts of the industry risk causing significant detriment to consumers drives the regulator’s thinking, and this fear could easily manifest itself in making consumers more cautious.
But are these factors, highlighted by the FSA, putting off female investors from saving in Sipps? Human behaviour is a fascinating thing. Generally, we are prepared to take a greater degree of risk when we are earning money and saving it than when we are no longer earning and relying on our savings for an income. There is more uncertainty: will the savings last long enough? What if costs and inflation go up too quickly? What if you live ‘too long’? This applies to both men and women, although the way individuals respond to these questions differs.
The uncertainty can explain why the majority of pension savers still opt for the relative security of the income provided by an annuity in preference to the variable growth and income potential of income drawdown. Among the variables that can impact on drawdown and keeping pensions ‘open’ are risks from both regulation and legislation. The Sipp market is about to receive a healthy dose of the former, while drawdown is, to some extent, still coming to terms with the latter.
Drawdown dilemmas
It is presumably not a lack of flexibility that is discouraging female Sipp savers. The introduction of capped and flexible drawdown in April 2011 was widely welcomed, although not many providers were able to offer flexible drawdown immediately. It did away with unsecured income and the highly restrictive alternatively secured pension (ASP), but in doing so also introduced a lower income limit calculation – 100 per cent of Gad (Government Actuary’s Department) where unsecured income had previously enjoyed 120 per cent – and some rules around when this would first apply, either at the five-yearly review or upon transfer to a new pension scheme.
