The truth about SIPPS
Our faith in what a SIPP provides in terms of creating and managing an ongoing pension strategy has never been more important. A SIPP, as a platform, gives far better control, flexibility and diversification than traditional pension arrangements. As a direct consequence of the banking crisis and latterly the Sovereign debt/Euro crisis, this simply served to strengthen the rationale around the use of a SIPP asset management platform. Our faith and ability to rely on longstanding household name type institutions, such as banks and insurance companies, has been shattered by the events of the last few years. This has driven a desire to be able to take control of what is often one’s biggest asset, a pension fund, and being able to spread one’s risk throughout not just a range of institutions and asset classes but also vehicles and structures that house underlying investment themes. It is crucial in order to create better security. Further, and with a true bespoke SIPP, having the control and ability to move between asset classes and vehicles or even simply sitting on the side lines to time when investments are made is a positive benefit to the SIPP type structure as opposed to traditional routes where monies are often invested without thought around timing and, worst still, the strategies are allowed to drift without the mechanism to take into account an ever changing world and investment dynamic.
The SIPP is therefore potentially suited to an individual who wants that sense of control and to develop a strategy within a structure that permits real proactive management. In that respect, the words ‘self-invested’ are almost misleading in that SIPPs are not designed for individuals who wish to make and run their own investment strategies (although of course a SIPP does allow this) rather the SIPP is nothing more than a management platform to capture all the themes described above. One arguable downside to the SIPP route is that to get the best out of the SIPP, one needs to become much more involved in their pension planning which many would say is a positive step. This may mean working closer and more regularly with their adviser.
The next question may well be what type of SIPP should one have? At present, it is quite confusing for investors as there are a plethora of different SIPP type products on the marketplace with a varying number of providers, which have different capabilities and indeed cost structures. It is often the case that investors end up comparing ‘apples with oranges’ by looking at the cost of one SIPP provider against the next. Indeed, as SIPPs have been, to an extent, the flavour of the month, it is arguably the case that the word ‘SIPP’ has been used to sell a product that only captures an element, and in some cases only a small element, of the attributes of a true or full SIPP. Having said that, it is a good thing for there to be a range of pension products on the marketplace as, in our view, it would be better to have some flexibility at the right cost as opposed to none at all. It is therefore the cost vs. benefit analysis that is critical in the decision of which type of SIPP is suitable and appropriate for an individual.
For individuals with existing pension assets, developed over a number of years in a variety of traditional pension policies, SIPPs have been used to consolidate pension arrangements in order to take control and better develop an ongoing strategy into retirement itself. This can be a relatively straightforward process particularly where relatively modern pension policies are being transferred. However, older style pension arrangements can carry key benefits and attributes that are lost on transfer and as such, a key message that we convey is that a full review of existing arrangements is absolutely essential.
By Dan Partridge, Consultant, Mattioli Woods