The fact Sipps will often offer full death benefits flexibility isn’t just a draw for investors leaving DB schemes. Advisers are increasingly aware that beneficiaries are normally restricted to the death benefits available in the scheme where the investor died. As such, they are making sure their clients are in schemes that offer the required benefits.
We also know private pension provision is becoming increasingly important, and that despite the bad press, pension saving is on the rise. Although this is mainly because of auto-enrolment, there’s also the argument that the pension freedoms have played their part. The main message to the public was that the pension freedoms give people control of their money again.
The hope is that people will feel more confident saving if they can access their money in a way that suits them when the time comes. If pension saving is on the rise with a generation of savers who want and expect control over their savings and flexible retirement options, the future still looks bright for Sipps.
The case against
On the other hand, there are also reasons to argue that Sipps business won’t continue to grow, or at least not at the same rate as it has done so far. The first reason that comes to mind is the increased level of regulatory scrutiny in several key areas. The pension freedoms led to major changes across the industry and the regulator is keen to ensure that consumers are still being protected.
DB transfers in particular are being very carefully examined. Over the last few months, we’ve seen several high-profile firms suspend DB transfers service following discussions with the FCA. Advisers are also increasingly wary of these transfers. Many who will advise on the transfers still worry that there may be repercussions if the transfer does not work out in the way the client hoped.
For others, the main concern is insistent clients, and the possibility they could still be blamed for facilitating a transaction they have not recommended.
Pension providers are also concerned about repercussions. Many will ask for advice on all transfers (rather than just those above £30,000) or need the investor to have a positive recommendation before proceeding. Such requests go further than the regulatory requirements, as providers want to make sure transfers are in the consumers’ best interests before accepting them.
If the volume of DB transfers declined, it would be unlikely to slow Sipps growth altogether, but could certainly be a contributing factor. If nothing else, the difficulties that can arise are already contributing to bad press, with consumers angry at needing to pay for advice in order to access the pension freedoms.
