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Pensions in 2008: What to expect

2008 promises to be another fascinating year for the pensions market. For one, the ramifications of the Pre-Budget Report are still being felt and whatever Darling finally settles on with regards to Capital Gains Tax, the impacts are likely to be keenly felt throughout the industry. If this is to be a serious blow to Investment Bonds, there is almost certain to be increased interest in both Offshore Bonds and SIPPs.

What we do know is that the SIPP market has continued to boom since A-Day, with a 54% increase in Single Premium business in 2006 and an estimated 60% in 2007. This already takes the market to a massive £29bn held in around 260,000 plans, (PM Survey 2007) and it looks like this will continue to grow and grow.

We are also seeing a whole new segment of educated, interested investors, who are wanting to take an active involvement in their retirement planning. SIPPs, with their move from the realm of specialised pension planning into the mass affluent heartland, are ideally placed to respond to this interest. So what are the issues that advisers might look out for in 2008?

First and foremost, it has to be the thorny issue of suitability, an area in which the FSA is taking a keen and well publicised interest. Traditionally, it may have been fair to see SIPPs as expensive, paying high commission and only for the most sophisticated investor. The new generation of SIPPs, however, are often deferred in regards to self–investment, have low charges, huge asset ranges and are an ideal option for many clients. We think we are building a portfolio of the very best SIPPs, with Legal & General’s Portfolio Plus SIPP at the core, together with other specialist options.

We also expect to see a continuation of the huge opportunities that exist in the consolidation of pension plans. Defaqto recently highlighted that there is still a great deal of closed book pension business. This, in association with many disparate and disorganised pension arrangements, means that advisors can often add more value than ever by bringing their clients’ pension plans into one consolidated pot. Our own recent survey on pensions highlighted that 42% of ABC1s aged 45yrs and over have more than one pension.

72% of personal pension holders don’t know about annuities

Just how much value advisers can give in this market place was highlighted in the Department for Work & Pensions survey conducted in 2006. It showed that an astonishing 72% of personal pension holders don’t know about annuities, 47% don’t know that pension contributions qualify for tax relief and 70% don’t know about the Pension Protection Fund. Food for thought.

90 different SIPPs on the market

We are very aware of the difficulties advisers face and how hard it is to keep on top of the latest developments. There are already nearly 90 different SIPPs on the market and it is no surprise that Defaqto reported that service and administration support rank in 5 out of the top 10 of intermediary requirements when dealing with SIPPs. Service and the adviser experience are the very heart of the Cofunds proposition and we are proud that FT advisor awarded us 5 stars in recognition of this service level.

50% of new SIPP business has Protected Rights attached

So what else will 2008 bring? Protected Rights are ever more important for the SIPP market, with Suffolk Life recently estimating that this market is worth £100billion in its own right, and that 50% of new SIPP business has Protected Rights attached. There is now a very strong likelihood that regulation changes later in the year will enable protected rights to be accepted into a wider range of assets. We’re also keeping a close eye on the booming popularity of multi-manager funds in the SIPP market and at the other end of the scale, the cost-effectiveness and simplicity of ETFs. Cofunds has some exciting developments lined up for 2008 and whatever the changes in the market, we are confident that we will continue to extend our position as the platform of choice for pensions.

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For professional advisers only and not to be relied upon by private investors or any other persons.

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