These contracts were in the main old contracts, mostly written before the stakeholder pensions launch in October 2001. From this date, charges reduced across the industry for new contracts and often a single pricing of units policy was adopted.
Sipp effect
So how does this phenomenon impact on Sipps? After all, one of the key selling points is their transparency of charges and the vast majority were established post-1995 when income drawdown and the deferral of annuity purchase helped boost their popularity.
In reality it should not but it appears that Sipps and their operators are often tarred with the same brush and dragged into the argument, again by those that do not always appreciate the additional complexities that apply to Sipp administration.
Sipps most often fall into one of two categories. The first is an extension of a conventional platform-based personal pension and offers investment into a variety of registered funds and shares, all of which are registered on recognised exchanges. These arrangements are usually costed by way of a number of basis points and as such charges are based on the value of the Sipp itself. Again, most often the functionality of the plan and the payment of benefits, for example, are costed within the overall calculation of basis points, which is charged across its whole book. Others offer a fixed fee irrespective of the value of the plan with additional charges depending upon the frequency and/or value of the trades made within the plan. These plans might also have a small administrative fee each time a benefit vesting occurs. Being that these Sipps have more often than not been created recently, they will already have had income drawdown flexibility built into them and the adaption to flexi-access and UFPLS. The point to be made here is that the investments are all held on a single technology driven platform, for which the valuation of investments is simple and where the administrative process is also largely technology driven.
However, the other side of the market is the full Sipp, where an even greater extension of investment flexibility is offered.
Drawing benefits
It is not uncommon for these Sipps to hold multiple bank accounts, individual collective investments, loans to unconnected third parties, commercial properties and, indeed, often combinations of the above. With an open architecture arrangement there are often few restrictions on where and with whom monies can be held. It would be impossible for a full Sipp provider to have live valuation links to all of the investment providers. So when a client wishes to draw benefits, the process requires up-to-date and accurate valuations to be pulled together from all sources before the documentation to allow benefits to be drawn can be prepared. In most cases the drawing of benefits also requires the raising of liquidity which – again as a result of the bespoke investments held by these vehicles – will require a manual process to implement.
