This communication is intended for qualified financial advisers only and must not be relied upon by anyone else.
It's no secret that self-invested personal pensions (SIPP) have been the big pension success story of the last few years, giving people more flexibility and control over their retirement savings. SIPPs have some vocal critics, who suggest many people don't use all of the features and options available. However, the reaction of SIPP customers to the current economic downturn clearly shows they are actively managing their pensions in a way that could never have been imagined only a few years ago.
Since the middle of 2008, when the current market turbulence kicked into gear, the number of investment decisions made by Standard Life's SIPP customers has steadily increased. In the three months to the end of January 2009, there were more than 12,300 investment trades, equivalent to 1 in 5 of our SIPP customers switching funds during this short period. This is a 250% increase in investment activity compared to the three months ending May 2008.
SIPP customers have long had the ability to view their pension online. And many people use this in the same way as increasing numbers access their bank accounts and buy goods over the internet. The ability to trade online, introduced in the middle of last year, has moved online capabilities another step forward. During January this year, one-third of our SIPP investment transactions were carried out online. Being able to easily buy, sell and switch funds every day, with no manual intervention is a huge benefit in these volatile market conditions. It ensures people get the next available price and it gives advisers a clear audit trail of past transactions.
Engagement with pensions in the UK has historically been poor. Automatic enrolment, when it is introduced from 2012, will help people start pensions, but encouraging people to join is only the first step. We still need to increase levels of saving, once people have joined, and combat the considerable levels of apathy that exist around investment choice. Increasing investment returns can lead to greater engagement that can, in turn, lead to greater savings - rather than a 'why bother' attitude.
Studies show fund performance is more important than charges in creating a retirement savings pot1. The frequency of investment switches in these turbulent times is a clear indicator that SIPP customers are engaged, do see value in actively managing their pensions, and have access to advice to help them make decisions.
The benefits the SIPP model brings should not be underestimated. Getting people interested and actively managing their pension savings is a huge leap forward from the traditional model where money was paid in then often forgotten about until retirement. The factory-gate pricing model under SIPP also helps achieve this active management. The services provided by advisers, the cost of these services, and the way the client will pay is clearly documented and understood by all at outset. This ongoing relationship means advisers play a key part in helping people actively manage their investments, in good times and bad.
The benefits of SIPPs are well known - wide investment choices, including fixed rate accounts, online functionality, flexibility to take benefits how and when it suits people, plus investment and retirement planning tools is a unique package. But increasing engagement and showing people the benefit of actively managing their retirement savings will also drive SIPPs to be the big pension success of the future.
1. Department for Work and Pensions, Financial incentives to save for retirement
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Tax and legislation are liable to change. This information is based on Standard
Life's current understanding of law and HM Revenue & Custom's practice and
the legislation we believe will apply from 6 April 2012.
Tax rates and reliefs may be altered. The value of tax reliefs to the investor
depends on their financial circumstances. No guarantees are given regarding
the effectiveness of any arrangements entered into on the basis of these comments.
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