Another potential threat is where an individual whose employer has not to date offered a pension scheme has taken on the responsibility for saving for retirement via an individual Sipp. On being entered into the employer’s auto-enrolment scheme, the individual could be faced with being unable to afford contributions to both schemes. It is perhaps unlikely that the employer will agree to pay an equivalent contribution to the employee’s own Sipp if they opt out of the auto-enrolment scheme. Therefore the likelihood is for the individual to remain in the auto-enrolment scheme to gain the advantage of employer contributions and cease contributions to their own Sipp.
However, it could be assumed that the individual had chosen the Sipp for the wide range of investment opportunities it offers, which may not be present in the auto-enrolment scheme. Therefore in time we could see an influx of transfer values from auto-enrolment schemes into Sipps to access the wider investments on offer.
Consolidation
On the subject of transfers, there is also the initiative whereby the pot automatically follows the member. This aims to put in place a mechanism where those changing jobs do not end up leaving small pension pots with each preceding employer’s pension scheme. The initiative is still being considered but, whatever happens, the focus appears to be on ensuring individuals consider the options for transferring their pension pot. With Sipps already proven to be a good consolidation vehicle, in the longer term Sipps could benefit well from the accumulation of pension funds via auto-enrolment.
Further down the line, when auto-enrolled individuals switch from the accumulation to the decumulation phase, we may again see a move towards Sipps that have a high degree of flexibility, control and options in how to draw retirement income.
Overall, although there may be some concern that auto-enrolment may reduce contribution levels to Sipps, in the longer term the accumulation of pension funds via auto-enrolment could boost transfers into Sipps as a consolidation vehicle, both for greater investment choice and to manage the decumulation phase. Time will tell.
Robert Graves is head of pensions technical services at Rowanmoor Group
