There were then a number of events that influenced the Sipp market, leading it to becoming the personal pension of choice and not necessarily at a premium price.
In my view the development of stakeholder pensions in 2001 had a profound effect on pensions in the UK. While not being a success in terms of the purpose for which they were intended, they did bring about the concept of a charges cap. They also introduced the requirement for any comparison of pension options to begin with a stakeholder before looking at the added value of other options (the so-called RU64 test). While not being subject to the cap, Sipp providers were keen to be there or thereabouts, and their charges reflected this.
In 1995, the arrival of income drawdown and the option of an alternative to an annuity meant that specialist investment management was needed in retirement. This has only been enhanced by the subsequent developments of alternatively secured pension and flexible drawdown, and will be vital in light of the Budget 2014 proposals.
Above all, the financial services industry was undergoing structural change, assisted by the massive use of technology. The old model of commission-based charging was changing. The traditional business models became unsustainable and the leviathans of the large insurance companies were unable to adapt to the market quickly.
Both 2006 and 2007 saw changes in Sipp regulation, such that the shortlist of acceptable organisations that could be Sipp providers (banks, building societies and unit trust companies) was abolished and now any organisation could be a Sipp operator with the necessary regulatory status.
Sipp providers were no longer weighed down with legacy business and the online Sipp was fast becoming the norm, allowing costs to be controlled even more.
Fast forward to today and the market has moved on again. We are now in the world of platforms and wrap accounts, with Sipps just being one of the tax wrappers sitting on systems that offer investment choice, dealing and all the ancillary services. Sipps have become commoditised and, as long as there is not too much non-mainstream activity, can be charged as such.
There is a wide variance in what Sipp providers consider a Sipp to be. Definitions range from a personal pension with a choice of funds, to a full stockbroker service that can trade on world markets and across the board on investments. There are also still several providers offering ‘bespoke’ Sipps, perhaps alongside Ssases, where the product continues to be charged at a premium for the individual service provided.
The Sipp market was originally seen very much as a space for financial advisers and specialist fund managers, but in parallel a number of providers developed a direct-to-consumer offering. Over the years, perhaps assisted by the RDR, the number of DIY investors has continued to grow, with lessons being learned and business models improved.
