Nic Paton looks at group self-invested personal pensions eight years after the product’s launch to gauge current market conditions and assess whether their popularity has grown as first expected
I t has taken eight years since the launch of group self-invested personal pensions (Sipps), when they were then being billed as pensions vehicles fit for everyone from the post-room junior to the chief executive, to move from being a tool predominantly for the financially savvy to a mainstream part of the corporate pensions’ landscape.
Last year, for example, Standard Life saw sales of its group Sipp products more than double, from 13% to 27% in the nine months to 30 September. And last December, pharmaceuticals giant GlaxoSmithKline added a group Sipp, provided by Legal & General, to its £5bn UK employee pension scheme. In the process, it became the first FTSE-100 company to allow its employees to plough maturing company share schemes directly into their pension, says Simon Pardoe, proposition director, corporate wealth at Legal & General.
He predicts that, by 2012, half of the FTSE employers will offer employees the chance to boost their retirement income in this way. “We are seeing many employers wanting to reassess their staff benefits and seeking to integrate long-term savings options in a cost-effective way,” Pardoe explains.
Flexibility for all Since A-Day in April 2006, when the government introduced new pension rules designed to make saving for retirement more straightforward, group Sipps have grown in popularity, says Andrew Tully, senior pension policy manager at Standard Life. “They are now a well-established vehicle and not niche any more. They are a much more mainstream option,” he explains.
In essence, group Sipps are similar to group personal pension plans (GPPs) except that as well as providing employees with access to a conventional range of personal pension funds, they also enable them to self invest and choose from a much wider collection of other funds and investment options.
Even the government’s decision in 2005 to renege on plans to include residential investment properties along with other assets, such as antiques, in Sipps, has failed to dampen their popularity among employers as much as may have initially been expected, says Tully. “It was taken out but then it never really got in. It was one of the proposed ideas but then the government withdrew it as an option,” he explains.
One of the key advantages of a group Sipp for employers is that it can be flexible enough to cover the needs of all levels of employees, from junior staff who want to treat it like a conventional pension, to more senior executives who might welcome being able to access a range of more complex retirement investments. “There is no huge difficulty in implementing it compared to any other kind of scheme. What is more likely now is there will be access to online investment and selection tools to help employees decide what investment they want,” Tully adds.
Offering a group Sipp can help to attract and retain senior staff and, as it is a personal pension, it does not carry the trustee liabilities associated with traditional occupational schemes.
Like GlaxoSmithKline, many employers are opting to run a group Sipp alongside a share option scheme, says Claire Court, head of self-administered pensions at independent financial adviser (IFA) firm Origen. This has the advantage of enabling staff to benefit from the tax efficiencies of two investment vehicles, without the need for approval from HM Revenue and Customs.
Court warns employers that they should think long and hard about whether the money they will spend on setting up and maintaining a group Sipp could be put to better use. “While they can sound attractive you need to check whether you really need one. Do your staff really want one? I would advise people [that they] should not be trying a Sipp without taking advice, and that does cost money and can potentially eat into a pension fund. It might be more appropriate to offer a personal pension that is easy to join and where people do not need to take advice,” she says.
With a wide range of group Sipp products now on the market it is also important for employers to get advice, normally from an independent financial adviser, on which will be the most suitable for their organisation. “Because it is a hybrid – a self-administered pension that is also an employee benefit arrangement – you need to speak to an adviser who understands both,” says Court.
If you read nothing else read this…
- Group self-invested personal pensions (Sipps) are growing in popularity among employers.
- Group Sipps may be a useful tool when it comes to retaining and attracting senior staff.
- Many employers run a group Sipp alongside a share option scheme, in order to take advantage of two sets of tax efficiencies.
- But employers should think long and hard, and get clear advice from an independent financial adviser, about whether they really need to offer a group Sipp or if a conventional occupational pension scheme might be more appropriate for their workforce.