Self-invested personal pensions (Sipps) have always evolved to meet changing demands.
But will they continue to be an important pension wrapper? Writes Christine Hallett, managing director of Options UK.
A growing market
We have seen a lot of consolidation among Sipp providers. There are now only a handful offering a truly independent Sipp wrapper.
But the marketplace continues to grow and falls into two categories: high volume platform Sipps, and smaller independent Sipps that provide advisers with more flexibility and enable more diversification across asset classes.
Both will continue to have a place in growing markets.
Consumer Duty
Consumer Duty is a major consideration for advisers and providers. In this context Sipps have some clear advantages in terms of adding value, and by creating opportunities for advisers to stand out from the crowd.
A Sipp is a regulated product which an adviser can make their own in relation to the needs of individual clients. One size does not fit all, and that’s something really important for IFAs to consider when offering advice.
For example, if an adviser aligns with a platform and puts all their clients on it, how do they demonstrate the value they are providing to their clients?
The advantage of a small independent Sipp provider is that they offer advisers the flexibility to focus on the needs of the individual client, and therefore address Consumer Duty issues.
UK corporation tax advantages
Following changes announced in the UK Budget, from 1 April 2023, the corporate tax (CT) rate increased to 25%, although the existing 19% level remains for companies reporting annual profits up to £50,000.
The new 25% rate applies to companies with annual profits of £250,000 ($310,000, €287,000) and above. Between the two rates taper relief applies, with CT levied at 26.5%.
Despite the increase in the tax burden, directors and business owners have an opportunity to legitimately reduce profits – and accompanying CT liability – while simultaneously boosting their pensions.
That’s because company owners can make contributions to their Sipp directly from pre-taxed company income, and reduce income tax and NIC plus the company’s employer national insurance liability on the contribution. It’s also important to note that direct Sipp contributions reduce a company’s profits and, therefore, its CT liability.
ESG
This is an area of growing importance and one that we, as Sipp providers, have understood for a number of years. There’s growing interest in ethical and social considerations, and we’ve seen particular interest in Shariah-compliant portfolios via our partnership with Wahed.
Developments across this market will continue at a rapid pace, and there are some very interesting socially responsible new funds being developed by non-stream fund managers – for example, covering social housing projects, alternative energy funds, and green funds.
This is currently the direction of travel for many fund managers, which is great for Sipps as they are able to allow such investments as long as they are regulated funds and subject to the appropriate levels of due diligence.
Commercial property
We are seeing more creative advice being giving in terms of commercial property opportunities. There are lots of vacant properties which can be obtained at a good price and with a good covenant. It still is a focus for many Sipp members.
Multiple Sipp members purchasing the commercial property from which they run their business has been increasing.
Some Sipp members are buying the property from the company to release money to invest in the business, which of course is particularly important in the context of many businesses looking for ways to help them through the current economic challenges.
Buying commercial property within a Sipp will continue to play an important part in the diversification and flexibility needed for a pension scheme utilising a Sipp. Current trends are showing positive views of the commercial property marketplace – for example, even buy-to-let landlords are looking for different opportunities such as change of use, or converting commercial to residential and vice versa.
This article was written for International Adviser by Christine Hallett, managing director of Options UK.
