The explosion of the individual Sipp market since A-Day has been increasingly translating over into the group side, but its rapid growth risks being stymied by a combination of the Budget changes and regulatory concerns.
Added to this heady mix is the forthcoming publication of the FSA’s investigation into Sipp sales in the third quarter. Although focused on adviser recommendations of the pension wrapper to individuals, few would bet against the regulator broadening its scope to include the burgeoning group Sipp market.
It is easy to see why. A conservative estimate would put the number of new members being offered access to group Sipps in the past 18 months at over 100,000 after several FTSE 100 companies opened schemes for their workforces.
The likes of BT providing a group Sipp for its 20,000 employees is a far cry from the pension wrapper’s niche origins and although clearly a number of different product types, such as deferred Sipps, have emerged, many still question their appropriateness for the wider market.
“The ground between group personal pensions and group Sipps has become very blurred and my personal view is that the market has got carried away,” says Nigel Manley, head of self-invested pensions at JLT Benefit Solutions.
It will be interesting to see if the regulator agrees. It is also notable that all of the blue chip companies that have put these arrangements in place did so before the Budget announcement. Admittedly, schemes of this size have a long lead time but both corporate advisers and product providers admit that the changes to the payment of tax relief on contributions and the anti-forestalling measures put in place in the run up to 2011 are already having an effect.
“The consequence of some of the detail in the Budget is that defined contribution pensions will be less tax efficient and therefore less attractive as a whole to the very high earners that are normally the decision makers at companies,” says Lee Hollingworth, head of DC consulting at Hymans Robertson. “There is no doubt that the changes will slow the growth of the group Sipp market.”
Tony Filbin, managing director of workplace savings at Legal & General, says that the insurer is finding that these individuals are typically falling into two camps. There are those that feel that although Sipps are not as attractive as they were pre-Budget, they still enable them to obtain a degree of tax relief and access a tax-free lump sum on retirement. Conversely, there are others that have become disengaged and feel that it is no longer worth bothering with DC pensions.
The eventual impact of the Budget changes is likely to become clearer early next year when it hits home to high earners wishing to make large one-off payments before the end of the tax year that they will be caught under the anti-forestalling rules.
That said, Filbin stands by his pre-Budget prediction that half of the FTSE 100 companies will be running group Sipps by 2012. His choice of year is obviously significant with auto-enrolment and personal accounts due to be introduced at the same time.
In some ways, the regulatory thrusts of the rules around offering alternative, or qualifying schemes, create almost countervailing pressures. On the one hand, the industry is being challenged to come up with a differentiated solution to the government-backed scheme, while on the other, the FSA is putting significant constraints in place, such as on cost and rejecting wider investment choice as good enough in its own right.
Rupert Curtis, chief executive at Curtis Banks, believes that the regulator is right to be concerned about the potential dangers of offering individuals access to a massive fund range, particularly where there is little or no advice involved.
He says: “The FSA is understandably worried about suitability issues and whether the client wants the product and one of the dangers of having that much choice is that people make totally wrong investment decisions.”
John Taylor, director of corporate pensions at Scottish Widows, agrees, noting experience shows that 90 per cent of the average workforce does not need the extra flexibility of a Sipp and that it is already difficult enough to get members to choose between two or three different default funds in a GPP or stakeholder arrangement.
Where there is perhaps less consensus is on cost. Manley argues that Sipps can be unjustifiably more expensive, particularly full Sipps if the extra investment powers are not being used.
However, most product providers argue that their insured Sipps have charging structures that are at least comparable to GPPs or stakeholder.
“A GPP is at the heart of our Sipp and we only charge for the other investment options when members use them. We can go as low as a 0.3 per cent annual management charge which compares very favourably with any other contract in the market,” Taylor says.
Likewise at L&G, Filbin stresses that cost is not a deterrent and is even a battleground that group Sipps can potentially win.
“In terms of cost, I expect the default fund in a Sipp to be cheaper than personal accounts,” he says.
This is especially the case when a scheme only has a single default fund. Indeed, many industry experts believe that this approach can form the core of a group Sipp strategy with members being effectively segmented into different groups with varying levels of flexibility enabled, according to their needs or by income.
Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, expects the move away from a one size fits all approach to gather momentum in the run up to personal accounts.
“Going forward, companies can use corporate Sipps to deliver their whole pension provision. Right at the bottom they can offer a single default option, which will keep costs down,” he says. “In the middle, members who are more engaged or have a larger pension pot can be offered a range of funds and at the top, executives can be offered a full Sipp.”
He cautions that this model clearly needs to be well-supported in terms of advice and engagement, and the corporate adviser’s role will be to ensure that individuals are put into the correct segment at the outset and manoeuvred up through them appropriately.
Indeed, many corporate advisers and product providers are increasingly looking to take this one step further and incorporate group Sipps as part of a wider employee benefits package, or a corporate wrap.
Hollingworth says that, if anything, the Budget changes that have made DC pensions less attractive for high earners will facilitate this transition.
“We call it workplace savings and we think that is where the market will go,” he says. “If you believe that for certain segments of the workplace pensions are much less tax efficient than they were, it will force employers to re-evaluate their benefits packages, certainly for high earners, and offer a range of products.”
Hollingworth says that some insurers are “in denial” about the threats to their business posed by the Budget and personal accounts, but points out that others have already made great strides forward in terms of offering a suite of savings vehicles alongside pensions and more are expected to come on line next year.
Many of the big group Sipps set up over the past 18 months have been established alongside single share corporate Isas and Filbin says this continues to remain attractive for Save As You Earn investors.
“When the scheme matures and you transfer money into the Isa within 90 days it is free of Capital Gains Tax. So, you can potentially shelter up to £10,200 each year and obtain tax relief on it if you use it as a pension contribution further down the line,” he says.
Offering cash Isas as part of an overall workplace savings package is also gathering momentum and the appeal is clear. Insurers get to protect their back-book from personal accounts or churning while gathering more assets. The adviser is better positioned to transition their business to a fund-based remuneration model ahead of the Retail Distribution Review if need be and the member receives a more holistic financial planning service and maximises the tax efficiency of their savings.
On top of that, the company can claim to be an employer of choice and the package is almost certain to be deemed a qualifying scheme.
“There is a real need to rethink workplace savings strategies and this is effectively an evolution of flexible benefits and an opportunity for employers to differentiate themselves,” Hollingworth says. “But the strategy needs to be set up in an appropriate structure and there is a real need for engagement.”
Taylor agrees and says he believes it is vital that the industry gets this right. “If we just add more complexity we have failed,” he says and he is right. If the industry cannot engage consumers in the run up to the introduction of personal accounts when the government will be bombarding the public with information about the need to save for retirement, it will surely be a massive opportunity missed.
Group SIPPS move into the mainstream
GlaxoSmithKline became the first FTSE 100 firm to introduce a group Sipp for its staff in January 2008.
The pharmaceutical giant, the UK’s fourth largest listed company, was advised by Mercer to go ahead with the Legal & General scheme the preceding September in an overhaul of its employee benefits strategy which also saw the implementation of a GSK corporate Isa. Set up by Standard Life, it enabled staff to shelter the proceeds from maturing Save As You Earn plans.
GSK’s lead has been followed by a number of blue chip names, including BT, Sainsbury’s, Morrisons, Kingfisher and BG Group. Although many were set up in part to receive share incentive plans and additional voluntary contribution schemes as contributions, many also act as the firms’ main defined contribution offering.
For example, BT, which opened its Standard Life-run group Sipp in April, is transferring members over from its old DC plan into the new scheme.
Similarly, among some of the FTSE 250 firms that have launched group Sipps, the bus company Stagecoach stands out as having started auto-enrolling workers into its Hargreaves Lansdown-administered arrangement back in May.
Not all commentators have welcomed the development, however. Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, says: “You have to be very careful when you move individuals into a Sipp. If you have a large telecoms company moving 20,000 into a Sipp, if you were cynical you might ask how many are really going to use that extra functionality?”
Focus: Workplace Savings Platforms
The development of workplace savings platforms or corporate wraps has been relatively slow compared to flexible benefits portals.
But, the game of catch-up is underway and many insurers will be bringing new products to market next year.
Legal & General is set to launch a regular savings Isa in the first quarter, which will offer access to cash and a range of mutual funds. Tony Filbin, L&G’s managing director of workplace savings says it will sit alongside the firm’s group Sipp and the company Isa it launched in June.
“We are hoping to launch in the first quarter and employees will be able to access a single view of their products online,” he says.
An offshore bond is another possibility, particularly in light of the changes to higher rate tax and pensions tax relief for big earners.
Likewise, Scottish Widows is planning on beefing up its product suite next year. Although he won’t be drawn on timings, director of corporate pensions John Taylor, says: “It is something we are actively working on and very excited about.”
Further down the line, Filbin expects that these provider platforms will be able to plug into employee benefits consultants
The explosion of the individual Sipp market since A-Day has been increasingly translating over into the group side, but its rapid growth risks being stymied by a combination of the Budget changes and regulatory concerns.
Added to this heady mix is the forthcoming publication of the FSA’s investigation into Sipp sales in the third quarter. Although focused on adviser recommendations of the pension wrapper to individuals, few would bet against the regulator broadening its scope to include the burgeoning group Sipp market.
It is easy to see why. A conservative estimate would put the number of new members being offered access to group Sipps in the past 18 months at over 100,000 after several FTSE 100 companies opened schemes for their workforces.
The likes of BT providing a group Sipp for its 20,000 employees is a far cry from the pension wrapper’s niche origins and although clearly a number of different product types, such as deferred Sipps, have emerged, many still question their appropriateness for the wider market.
“The ground between group personal pensions and group Sipps has become very blurred and my personal view is that the market has got carried away,” says Nigel Manley, head of self-invested pensions at JLT Benefit Solutions.
It will be interesting to see if the regulator agrees. It is also notable that all of the blue chip companies that have put these arrangements in place did so before the Budget announcement. Admittedly, schemes of this size have a long lead time but both corporate advisers and product providers admit that the changes to the payment of tax relief on contributions and the anti-forestalling measures put in place in the run up to 2011 are already having an effect.
“The consequence of some of the detail in the Budget is that defined contribution pensions will be less tax efficient and therefore less attractive as a whole to the very high earners that are normally the decision makers at companies,” says Lee Hollingworth, head of DC consulting at Hymans Robertson. “There is no doubt that the changes will slow the growth of the group Sipp market.”
Tony Filbin, managing director of workplace savings at Legal & General, says that the insurer is finding that these individuals are typically falling into two camps. There are those that feel that although Sipps are not as attractive as they were pre-Budget, they still enable them to obtain a degree of tax relief and access a tax-free lump sum on retirement. Conversely, there are others that have become disengaged and feel that it is no longer worth bothering with DC pensions.
The eventual impact of the Budget changes is likely to become clearer early next year when it hits home to high earners wishing to make large one-off payments before the end of the tax year that they will be caught under the anti-forestalling rules.
That said, Filbin stands by his pre-Budget prediction that half of the FTSE 100 companies will be running group Sipps by 2012. His choice of year is obviously significant with auto-enrolment and personal accounts due to be introduced at the same time.
In some ways, the regulatory thrusts of the rules around offering alternative, or qualifying schemes, create almost countervailing pressures. On the one hand, the industry is being challenged to come up with a differentiated solution to the government-backed scheme, while on the other, the FSA is putting significant constraints in place, such as on cost and rejecting wider investment choice as good enough in its own right.
Rupert Curtis, chief executive at Curtis Banks, believes that the regulator is right to be concerned about the potential dangers of offering individuals access to a massive fund range, particularly where there is little or no advice involved.
He says: “The FSA is understandably worried about suitability issues and whether the client wants the product and one of the dangers of having that much choice is that people make totally wrong investment decisions.”
John Taylor, director of corporate pensions at Scottish Widows, agrees, noting experience shows that 90 per cent of the average workforce does not need the extra flexibility of a Sipp and that it is already difficult enough to get members to choose between two or three different default funds in a GPP or stakeholder arrangement.
Where there is perhaps less consensus is on cost. Manley argues that Sipps can be unjustifiably more expensive, particularly full Sipps if the extra investment powers are not being used.
However, most product providers argue that their insured Sipps have charging structures that are at least comparable to GPPs or stakeholder.
“A GPP is at the heart of our Sipp and we only charge for the other investment options when members use them. We can go as low as a 0.3 per cent annual management charge which compares very favourably with any other contract in the market,” Taylor says.
Likewise at L&G, Filbin stresses that cost is not a deterrent and is even a battleground that group Sipps can potentially win.
“In terms of cost, I expect the default fund in a Sipp to be cheaper than personal accounts,” he says.
This is especially the case when a scheme only has a single default fund. Indeed, many industry experts believe that this approach can form the core of a group Sipp strategy with members being effectively segmented into different groups with varying levels of flexibility enabled, according to their needs or by income.
Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, expects the move away from a one size fits all approach to gather momentum in the run up to personal accounts.
“Going forward, companies can use corporate Sipps to deliver their whole pension provision. Right at the bottom they can offer a single default option, which will keep costs down,” he says. “In the middle, members who are more engaged or have a larger pension pot can be offered a range of funds and at the top, executives can be offered a full Sipp.”
He cautions that this model clearly needs to be well-supported in terms of advice and engagement, and the corporate adviser’s role will be to ensure that individuals are put into the correct segment at the outset and manoeuvred up through them appropriately.
Indeed, many corporate advisers and product providers are increasingly looking to take this one step further and incorporate group Sipps as part of a wider employee benefits package, or a corporate wrap.
Hollingworth says that, if anything, the Budget changes that have made DC pensions less attractive for high earners will facilitate this transition.
“We call it workplace savings and we think that is where the market will go,” he says. “If you believe that for certain segments of the workplace pensions are much less tax efficient than they were, it will force employers to re-evaluate their benefits packages, certainly for high earners, and offer a range of products.”
Hollingworth says that some insurers are “in denial” about the threats to their business posed by the Budget and personal accounts, but points out that others have already made great strides forward in terms of offering a suite of savings vehicles alongside pensions and more are expected to come on line next year.
Many of the big group Sipps set up over the past 18 months have been established alongside single share corporate Isas and Filbin says this continues to remain attractive for Save As You Earn investors.
“When the scheme matures and you transfer money into the Isa within 90 days it is free of Capital Gains Tax. So, you can potentially shelter up to £10,200 each year and obtain tax relief on it if you use it as a pension contribution further down the line,” he says.
Offering cash Isas as part of an overall workplace savings package is also gathering momentum and the appeal is clear. Insurers get to protect their back-book from personal accounts or churning while gathering more assets. The adviser is better positioned to transition their business to a fund-based remuneration model ahead of the Retail Distribution Review if need be and the member receives a more holistic financial planning service and maximises the tax efficiency of their savings.
On top of that, the company can claim to be an employer of choice and the package is almost certain to be deemed a qualifying scheme.
“There is a real need to rethink workplace savings strategies and this is effectively an evolution of flexible benefits and an opportunity for employers to differentiate themselves,” Hollingworth says. “But the strategy needs to be set up in an appropriate structure and there is a real need for engagement.”
Taylor agrees and says he believes it is vital that the industry gets this right. “If we just add more complexity we have failed,” he says and he is right. If the industry cannot engage consumers in the run up to the introduction of personal accounts when the government will be bombarding the public with information about the need to save for retirement, it will surely be a massive opportunity missed.
Group SIPPS move into the mainstream
GlaxoSmithKline became the first FTSE 100 firm to introduce a group Sipp for its staff in January 2008.
The pharmaceutical giant, the UK’s fourth largest listed company, was advised by Mercer to go ahead with the Legal & General scheme the preceding September in an overhaul of its employee benefits strategy which also saw the implementation of a GSK corporate Isa. Set up by Standard Life, it enabled staff to shelter the proceeds from maturing Save As You Earn plans.
GSK’s lead has been followed by a number of blue chip names, including BT, Sainsbury’s, Morrisons, Kingfisher and BG Group. Although many were set up in part to receive share incentive plans and additional voluntary contribution schemes as contributions, many also act as the firms’ main defined contribution offering.
For example, BT, which opened its Standard Life-run group Sipp in April, is transferring members over from its old DC plan into the new scheme.
Similarly, among some of the FTSE 250 firms that have launched group Sipps, the bus company Stagecoach stands out as having started auto-enrolling workers into its Hargreaves Lansdown-administered arrangement back in May.
Not all commentators have welcomed the development, however. Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, says: “You have to be very careful when you move individuals into a Sipp. If you have a large telecoms company moving 20,000 into a Sipp, if you were cynical you might ask how many are really going to use that extra functionality?”
Focus: Workplace Savings Platforms
The development of workplace savings platforms or corporate wraps has been relatively slow compared to flexible benefits portals.
But, the game of catch-up is underway and many insurers will be bringing new products to market next year.
Legal & General is set to launch a regular savings Isa in the first quarter, which will offer access to cash and a range of mutual funds. Tony Filbin, L&G’s managing director of workplace savings says it will sit alongside the firm’s group Sipp and the company Isa it launched in June.
“We are hoping to launch in the first quarter and employees will be able to access a single view of their products online,” he says.
An offshore bond is another possibility, particularly in light of the changes to higher rate tax and pensions tax relief for big earners.
Likewise, Scottish Widows is planning on beefing up its product suite next year. Although he won’t be drawn on timings, director of corporate pensions John Taylor, says: “It is something we are actively working on and very excited about.”
Further down the line, Filbin expects that these provider platforms will be able to plug into employee benefits consultants
The explosion of the individual Sipp market since A-Day has been increasingly translating over into the group side, but its rapid growth risks being stymied by a combination of the Budget changes and regulatory concerns.
Added to this heady mix is the forthcoming publication of the FSA’s investigation into Sipp sales in the third quarter. Although focused on adviser recommendations of the pension wrapper to individuals, few would bet against the regulator broadening its scope to include the burgeoning group Sipp market.
It is easy to see why. A conservative estimate would put the number of new members being offered access to group Sipps in the past 18 months at over 100,000 after several FTSE 100 companies opened schemes for their workforces.
The likes of BT providing a group Sipp for its 20,000 employees is a far cry from the pension wrapper’s niche origins and although clearly a number of different product types, such as deferred Sipps, have emerged, many still question their appropriateness for the wider market.
“The ground between group personal pensions and group Sipps has become very blurred and my personal view is that the market has got carried away,” says Nigel Manley, head of self-invested pensions at JLT Benefit Solutions.
It will be interesting to see if the regulator agrees. It is also notable that all of the blue chip companies that have put these arrangements in place did so before the Budget announcement. Admittedly, schemes of this size have a long lead time but both corporate advisers and product providers admit that the changes to the payment of tax relief on contributions and the anti-forestalling measures put in place in the run up to 2011 are already having an effect.
“The consequence of some of the detail in the Budget is that defined contribution pensions will be less tax efficient and therefore less attractive as a whole to the very high earners that are normally the decision makers at companies,” says Lee Hollingworth, head of DC consulting at Hymans Robertson. “There is no doubt that the changes will slow the growth of the group Sipp market.”
Tony Filbin, managing director of workplace savings at Legal & General, says that the insurer is finding that these individuals are typically falling into two camps. There are those that feel that although Sipps are not as attractive as they were pre-Budget, they still enable them to obtain a degree of tax relief and access a tax-free lump sum on retirement. Conversely, there are others that have become disengaged and feel that it is no longer worth bothering with DC pensions.
The eventual impact of the Budget changes is likely to become clearer early next year when it hits home to high earners wishing to make large one-off payments before the end of the tax year that they will be caught under the anti-forestalling rules.
That said, Filbin stands by his pre-Budget prediction that half of the FTSE 100 companies will be running group Sipps by 2012. His choice of year is obviously significant with auto-enrolment and personal accounts due to be introduced at the same time.
In some ways, the regulatory thrusts of the rules around offering alternative, or qualifying schemes, create almost countervailing pressures. On the one hand, the industry is being challenged to come up with a differentiated solution to the government-backed scheme, while on the other, the FSA is putting significant constraints in place, such as on cost and rejecting wider investment choice as good enough in its own right.
Rupert Curtis, chief executive at Curtis Banks, believes that the regulator is right to be concerned about the potential dangers of offering individuals access to a massive fund range, particularly where there is little or no advice involved.
He says: “The FSA is understandably worried about suitability issues and whether the client wants the product and one of the dangers of having that much choice is that people make totally wrong investment decisions.”
John Taylor, director of corporate pensions at Scottish Widows, agrees, noting experience shows that 90 per cent of the average workforce does not need the extra flexibility of a Sipp and that it is already difficult enough to get members to choose between two or three different default funds in a GPP or stakeholder arrangement.
Where there is perhaps less consensus is on cost. Manley argues that Sipps can be unjustifiably more expensive, particularly full Sipps if the extra investment powers are not being used.
However, most product providers argue that their insured Sipps have charging structures that are at least comparable to GPPs or stakeholder.
“A GPP is at the heart of our Sipp and we only charge for the other investment options when members use them. We can go as low as a 0.3 per cent annual management charge which compares very favourably with any other contract in the market,” Taylor says.
Likewise at L&G, Filbin stresses that cost is not a deterrent and is even a battleground that group Sipps can potentially win.
“In terms of cost, I expect the default fund in a Sipp to be cheaper than personal accounts,” he says.
This is especially the case when a scheme only has a single default fund. Indeed, many industry experts believe that this approach can form the core of a group Sipp strategy with members being effectively segmented into different groups with varying levels of flexibility enabled, according to their needs or by income.
Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, expects the move away from a one size fits all approach to gather momentum in the run up to personal accounts.
“Going forward, companies can use corporate Sipps to deliver their whole pension provision. Right at the bottom they can offer a single default option, which will keep costs down,” he says. “In the middle, members who are more engaged or have a larger pension pot can be offered a range of funds and at the top, executives can be offered a full Sipp.”
He cautions that this model clearly needs to be well-supported in terms of advice and engagement, and the corporate adviser’s role will be to ensure that individuals are put into the correct segment at the outset and manoeuvred up through them appropriately.
Indeed, many corporate advisers and product providers are increasingly looking to take this one step further and incorporate group Sipps as part of a wider employee benefits package, or a corporate wrap.
Hollingworth says that, if anything, the Budget changes that have made DC pensions less attractive for high earners will facilitate this transition.
“We call it workplace savings and we think that is where the market will go,” he says. “If you believe that for certain segments of the workplace pensions are much less tax efficient than they were, it will force employers to re-evaluate their benefits packages, certainly for high earners, and offer a range of products.”
Hollingworth says that some insurers are “in denial” about the threats to their business posed by the Budget and personal accounts, but points out that others have already made great strides forward in terms of offering a suite of savings vehicles alongside pensions and more are expected to come on line next year.
Many of the big group Sipps set up over the past 18 months have been established alongside single share corporate Isas and Filbin says this continues to remain attractive for Save As You Earn investors.
“When the scheme matures and you transfer money into the Isa within 90 days it is free of Capital Gains Tax. So, you can potentially shelter up to £10,200 each year and obtain tax relief on it if you use it as a pension contribution further down the line,” he says.
Offering cash Isas as part of an overall workplace savings package is also gathering momentum and the appeal is clear. Insurers get to protect their back-book from personal accounts or churning while gathering more assets. The adviser is better positioned to transition their business to a fund-based remuneration model ahead of the Retail Distribution Review if need be and the member receives a more holistic financial planning service and maximises the tax efficiency of their savings.
On top of that, the company can claim to be an employer of choice and the package is almost certain to be deemed a qualifying scheme.
“There is a real need to rethink workplace savings strategies and this is effectively an evolution of flexible benefits and an opportunity for employers to differentiate themselves,” Hollingworth says. “But the strategy needs to be set up in an appropriate structure and there is a real need for engagement.”
Taylor agrees and says he believes it is vital that the industry gets this right. “If we just add more complexity we have failed,” he says and he is right. If the industry cannot engage consumers in the run up to the introduction of personal accounts when the government will be bombarding the public with information about the need to save for retirement, it will surely be a massive opportunity missed.
Group SIPPS move into the mainstream
GlaxoSmithKline became the first FTSE 100 firm to introduce a group Sipp for its staff in January 2008.
The pharmaceutical giant, the UK’s fourth largest listed company, was advised by Mercer to go ahead with the Legal & General scheme the preceding September in an overhaul of its employee benefits strategy which also saw the implementation of a GSK corporate Isa. Set up by Standard Life, it enabled staff to shelter the proceeds from maturing Save As You Earn plans.
GSK’s lead has been followed by a number of blue chip names, including BT, Sainsbury’s, Morrisons, Kingfisher and BG Group. Although many were set up in part to receive share incentive plans and additional voluntary contribution schemes as contributions, many also act as the firms’ main defined contribution offering.
For example, BT, which opened its Standard Life-run group Sipp in April, is transferring members over from its old DC plan into the new scheme.
Similarly, among some of the FTSE 250 firms that have launched group Sipps, the bus company Stagecoach stands out as having started auto-enrolling workers into its Hargreaves Lansdown-administered arrangement back in May.
Not all commentators have welcomed the development, however. Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, says: “You have to be very careful when you move individuals into a Sipp. If you have a large telecoms company moving 20,000 into a Sipp, if you were cynical you might ask how many are really going to use that extra functionality?”
Focus: Workplace Savings Platforms
The development of workplace savings platforms or corporate wraps has been relatively slow compared to flexible benefits portals.
But, the game of catch-up is underway and many insurers will be bringing new products to market next year.
Legal & General is set to launch a regular savings Isa in the first quarter, which will offer access to cash and a range of mutual funds. Tony Filbin, L&G’s managing director of workplace savings says it will sit alongside the firm’s group Sipp and the company Isa it launched in June.
“We are hoping to launch in the first quarter and employees will be able to access a single view of their products online,” he says.
An offshore bond is another possibility, particularly in light of the changes to higher rate tax and pensions tax relief for big earners.
Likewise, Scottish Widows is planning on beefing up its product suite next year. Although he won’t be drawn on timings, director of corporate pensions John Taylor, says: “It is something we are actively working on and very excited about.”
Further down the line, Filbin expects that these provider platforms will be able to plug into employee benefits consultants
The explosion of the individual Sipp market since A-Day has been increasingly translating over into the group side, but its rapid growth risks being stymied by a combination of the Budget changes and regulatory concerns.
Added to this heady mix is the forthcoming publication of the FSA’s investigation into Sipp sales in the third quarter. Although focused on adviser recommendations of the pension wrapper to individuals, few would bet against the regulator broadening its scope to include the burgeoning group Sipp market.
It is easy to see why. A conservative estimate would put the number of new members being offered access to group Sipps in the past 18 months at over 100,000 after several FTSE 100 companies opened schemes for their workforces.
The likes of BT providing a group Sipp for its 20,000 employees is a far cry from the pension wrapper’s niche origins and although clearly a number of different product types, such as deferred Sipps, have emerged, many still question their appropriateness for the wider market.
“The ground between group personal pensions and group Sipps has become very blurred and my personal view is that the market has got carried away,” says Nigel Manley, head of self-invested pensions at JLT Benefit Solutions.
It will be interesting to see if the regulator agrees. It is also notable that all of the blue chip companies that have put these arrangements in place did so before the Budget announcement. Admittedly, schemes of this size have a long lead time but both corporate advisers and product providers admit that the changes to the payment of tax relief on contributions and the anti-forestalling measures put in place in the run up to 2011 are already having an effect.
“The consequence of some of the detail in the Budget is that defined contribution pensions will be less tax efficient and therefore less attractive as a whole to the very high earners that are normally the decision makers at companies,” says Lee Hollingworth, head of DC consulting at Hymans Robertson. “There is no doubt that the changes will slow the growth of the group Sipp market.”
Tony Filbin, managing director of workplace savings at Legal & General, says that the insurer is finding that these individuals are typically falling into two camps. There are those that feel that although Sipps are not as attractive as they were pre-Budget, they still enable them to obtain a degree of tax relief and access a tax-free lump sum on retirement. Conversely, there are others that have become disengaged and feel that it is no longer worth bothering with DC pensions.
The eventual impact of the Budget changes is likely to become clearer early next year when it hits home to high earners wishing to make large one-off payments before the end of the tax year that they will be caught under the anti-forestalling rules.
That said, Filbin stands by his pre-Budget prediction that half of the FTSE 100 companies will be running group Sipps by 2012. His choice of year is obviously significant with auto-enrolment and personal accounts due to be introduced at the same time.
In some ways, the regulatory thrusts of the rules around offering alternative, or qualifying schemes, create almost countervailing pressures. On the one hand, the industry is being challenged to come up with a differentiated solution to the government-backed scheme, while on the other, the FSA is putting significant constraints in place, such as on cost and rejecting wider investment choice as good enough in its own right.
Rupert Curtis, chief executive at Curtis Banks, believes that the regulator is right to be concerned about the potential dangers of offering individuals access to a massive fund range, particularly where there is little or no advice involved.
He says: “The FSA is understandably worried about suitability issues and whether the client wants the product and one of the dangers of having that much choice is that people make totally wrong investment decisions.”
John Taylor, director of corporate pensions at Scottish Widows, agrees, noting experience shows that 90 per cent of the average workforce does not need the extra flexibility of a Sipp and that it is already difficult enough to get members to choose between two or three different default funds in a GPP or stakeholder arrangement.
Where there is perhaps less consensus is on cost. Manley argues that Sipps can be unjustifiably more expensive, particularly full Sipps if the extra investment powers are not being used.
However, most product providers argue that their insured Sipps have charging structures that are at least comparable to GPPs or stakeholder.
“A GPP is at the heart of our Sipp and we only charge for the other investment options when members use them. We can go as low as a 0.3 per cent annual management charge which compares very favourably with any other contract in the market,” Taylor says.
Likewise at L&G, Filbin stresses that cost is not a deterrent and is even a battleground that group Sipps can potentially win.
“In terms of cost, I expect the default fund in a Sipp to be cheaper than personal accounts,” he says.
This is especially the case when a scheme only has a single default fund. Indeed, many industry experts believe that this approach can form the core of a group Sipp strategy with members being effectively segmented into different groups with varying levels of flexibility enabled, according to their needs or by income.
Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, expects the move away from a one size fits all approach to gather momentum in the run up to personal accounts.
“Going forward, companies can use corporate Sipps to deliver their whole pension provision. Right at the bottom they can offer a single default option, which will keep costs down,” he says. “In the middle, members who are more engaged or have a larger pension pot can be offered a range of funds and at the top, executives can be offered a full Sipp.”
He cautions that this model clearly needs to be well-supported in terms of advice and engagement, and the corporate adviser’s role will be to ensure that individuals are put into the correct segment at the outset and manoeuvred up through them appropriately.
Indeed, many corporate advisers and product providers are increasingly looking to take this one step further and incorporate group Sipps as part of a wider employee benefits package, or a corporate wrap.
Hollingworth says that, if anything, the Budget changes that have made DC pensions less attractive for high earners will facilitate this transition.
“We call it workplace savings and we think that is where the market will go,” he says. “If you believe that for certain segments of the workplace pensions are much less tax efficient than they were, it will force employers to re-evaluate their benefits packages, certainly for high earners, and offer a range of products.”
Hollingworth says that some insurers are “in denial” about the threats to their business posed by the Budget and personal accounts, but points out that others have already made great strides forward in terms of offering a suite of savings vehicles alongside pensions and more are expected to come on line next year.
Many of the big group Sipps set up over the past 18 months have been established alongside single share corporate Isas and Filbin says this continues to remain attractive for Save As You Earn investors.
“When the scheme matures and you transfer money into the Isa within 90 days it is free of Capital Gains Tax. So, you can potentially shelter up to £10,200 each year and obtain tax relief on it if you use it as a pension contribution further down the line,” he says.
Offering cash Isas as part of an overall workplace savings package is also gathering momentum and the appeal is clear. Insurers get to protect their back-book from personal accounts or churning while gathering more assets. The adviser is better positioned to transition their business to a fund-based remuneration model ahead of the Retail Distribution Review if need be and the member receives a more holistic financial planning service and maximises the tax efficiency of their savings.
On top of that, the company can claim to be an employer of choice and the package is almost certain to be deemed a qualifying scheme.
“There is a real need to rethink workplace savings strategies and this is effectively an evolution of flexible benefits and an opportunity for employers to differentiate themselves,” Hollingworth says. “But the strategy needs to be set up in an appropriate structure and there is a real need for engagement.”
Taylor agrees and says he believes it is vital that the industry gets this right. “If we just add more complexity we have failed,” he says and he is right. If the industry cannot engage consumers in the run up to the introduction of personal accounts when the government will be bombarding the public with information about the need to save for retirement, it will surely be a massive opportunity missed.
Group SIPPS move into the mainstream
GlaxoSmithKline became the first FTSE 100 firm to introduce a group Sipp for its staff in January 2008.
The pharmaceutical giant, the UK’s fourth largest listed company, was advised by Mercer to go ahead with the Legal & General scheme the preceding September in an overhaul of its employee benefits strategy which also saw the implementation of a GSK corporate Isa. Set up by Standard Life, it enabled staff to shelter the proceeds from maturing Save As You Earn plans.
GSK’s lead has been followed by a number of blue chip names, including BT, Sainsbury’s, Morrisons, Kingfisher and BG Group. Although many were set up in part to receive share incentive plans and additional voluntary contribution schemes as contributions, many also act as the firms’ main defined contribution offering.
For example, BT, which opened its Standard Life-run group Sipp in April, is transferring members over from its old DC plan into the new scheme.
Similarly, among some of the FTSE 250 firms that have launched group Sipps, the bus company Stagecoach stands out as having started auto-enrolling workers into its Hargreaves Lansdown-administered arrangement back in May.
Not all commentators have welcomed the development, however. Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, says: “You have to be very careful when you move individuals into a Sipp. If you have a large telecoms company moving 20,000 into a Sipp, if you were cynical you might ask how many are really going to use that extra functionality?”
Focus: Workplace Savings Platforms
The development of workplace savings platforms or corporate wraps has been relatively slow compared to flexible benefits portals.
But, the game of catch-up is underway and many insurers will be bringing new products to market next year.
Legal & General is set to launch a regular savings Isa in the first quarter, which will offer access to cash and a range of mutual funds. Tony Filbin, L&G’s managing director of workplace savings says it will sit alongside the firm’s group Sipp and the company Isa it launched in June.
“We are hoping to launch in the first quarter and employees will be able to access a single view of their products online,” he says.
An offshore bond is another possibility, particularly in light of the changes to higher rate tax and pensions tax relief for big earners.
Likewise, Scottish Widows is planning on beefing up its product suite next year. Although he won’t be drawn on timings, director of corporate pensions John Taylor, says: “It is something we are actively working on and very excited about.”
Further down the line, Filbin expects that these provider platforms will be able to plug into employee benefits consultants
