Who are self-invested personal pensions suited to?

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• Many corporate self-invested personal pensions (Sipps) exist as an added extra to a group personal pension and are typically used by higher earners contributing at least £300 a month.

•Corporate Sipps can be used as taxefficient vehicles in which to hold company shares, as well as to gain access to specific fund managers.

•Less than 10% of employees take up the self-invested facilities available in a defined contribution (DC) scheme.

Self-invested personal pension schemes continue to be more popular with individual employees than with employers as a group benefit, says Marek Handzel

Group self-invested personal pensions (Sipps) have been around for at least a decade and championed by providers and employee benefits consultants alike, but employer demand has never reached much of a peak.

This lack of take-up has affected product choice, with providers such as James Hay, the Sipp provider sold to IFG Group by Santander in 2010, having discontinued its workplace offering last year.

Richard Prior, head of self-invested pensions at Premier Pension Services, attributes the drop in group Sipp products, also known as corporate Sipps, to an acceptance by some providers that the take-up rates seen in the booming individual Sipp market are not going to happen in the corporate space. This is despite take-up by employer giants such as BT Group, which launched its own corporate Sipp for employees in April 2009.

Two key events can help explain employers’ lack of interest in corporate Sipps. Firstly, the Financial Services Authority’s 2008 Review of self-invested personal pensions operators outlined the complexities of Sipps, including corporate versions, and the risks associated with staff transferring into them. Secondly, auto-enrolment, which starts for larger employers in October, is prompting many to focus on low-cost, relatively simple bulk schemes, rather than the arguably riskier and more costly corporate Sipp.

Added extra for high earners

Consequently, corporate Sipps now exist, for the most part, as an added extra for high earners. Anish Rav, head of insured and bundled solutions and senior consultant at Hymans Robertson, says: “A lot of companies look at group Sipp flexibility when they are selecting a provider because it is a nice bolt-on to have. And when it is a bolt-on it is not detrimental to other members, because those additional costs apply to the member who takes up the group Sipp arrangement.”

Employees who use the Sipp facility within their employer’s defined contribution (DC) scheme tend to do so to gain access to a discretionary fund manager or a fund they particularly like that is not available through the main DC scheme, or to obtain a tax-efficient vehicle in which to hold company shares. Higher-rate taxpayers can receive up to 40% tax relief on all shares they put into a corporate Sipp, thanks to their status as a regular pensions contribution.

Ian Mahoney, operations director at Legal and General, which launched its corporate Sipp add-on in 2007, says: “A Sipp is a useful vehicle to run alongside the pension plan and broaden the investment choice or range, and allow the employee to take advantage of the share facility employers give workers.”

Monthly contributions of at least £300 are typical for the average Sipp facility user.

The cost of a self-invested facility varies between providers, with Legal and General, for example, charging a £200 installation fee and then an annual management charge of 0.5% of the value of all self-invested assets.

Standalone, bespoke corporate Sipps are still around, but are typically offered by smaller providers. Premier Pension Services, for example, provides them to senior managers and directors as a tailored product that has more investment options than the one-size-fits-all, limited investment proposition typically offered by insurers.
Current trends suggest Sipps will remain largely the preserve of the individual.

Read Why group Sipps are becoming popular in the workplace

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