1st October 2009

News from LV=

LV= launch new Mortgage & Lifestyle Protection Competition - Win a Wii™ and Wii Fit™ throughout October!

We’re giving away a Nintendo Wii™ and Wii Fit™ everyday throughout October. Each Mortgage & Lifestyle application submitted though www.LVmlp.co.uk, will enter you into a draw for that days Wii™ and Wii Fit™ prize.

Please see download PDF here for more

The long and the short of SIPPs

In this months article, Ray Chinn focuses on the recently published FSA report on the findings of a thematic review on Self Invested Personal Pensions.

Q. What is the thematic review all about – is it linked to the recent Pension Switching Review?

Ray: The short answer: No – it’s not directly linked to the Pension Switching review, although, taken together, these two reviews pose some interesting challenges for the pensions industry.

The long answer: The thematic review of SIPP providers is the first of its kind since SIPPs became an FSA regulated product in April 2007. It involved a review of 60 small SIPP operators and the primary purpose was to examine the extent to which these operators were adhering to the FSAs Principles and Rules.

The timing of the review and report is largely coincidental with the timing of the Pensions

Switching work which the FSA has also been undertaking. On many levels the two pieces of work address different issues, but there are some common areas. For example, the need to demonstrate fair treatment of customers (TCF), the need for clear disclosure about fees and charges and the importance of providing relevant and realistic projections to customers.

Q. What are the key findings of the report?

Ray: The short answer: The FSA have identified three key areas of concern; The extent to which the providers reviewed have embraced TCF, concerns about the lack of responsibility shown by SIPP providers with regard to the quality of business they administer and concerns around systems and controls including the accuracy of illustrations and charge disclosure.

The long answer: Building on these comments, the FSA report is fairly damning in terms of its criticism of the amount of Management Information (MI) that the firms they reviewed held and were able to utilise to improve the running of their businesses and outcomes to customers.

Some of the FSAs suggestions for improvement include:

• Devising formal administration and service standards
• Recording the time taken and accuracy of administration services
• Having a robust training and competence scheme in place
• Performing an ongoing analysis of charges and pricing and a comparison with a take up of the corresponding services

On the surface, these findings are surprising given the service related nature inherent in the role of SIPP providers. Transparency is also mentioned. The FSA commented on SIPP providers who provided an hourly rate for services but failed to indicate what the final cost of a transaction was likely to be – hardly a transparent view for the customer!

Q. So what can we take away from the findings of the review and what is the likely impact on the SIPP market?

Ray: The short answer:The industry must respond to the findings in a positive manner and take visible steps to address the FSAs concerns. Failure to do so brings the risk of regulatory action and damage to the public perception of the SIPP market. In the medium term it is likely that the costs of implementing some of the changes required will lead to further consolidation in the SIPP market.

The long answer: Over the past two years, the SIPP market has started to come of age – somewhat ironic given that SIPPs will have been in existence for 21 years in 2010. SIPPs – and their derivatives – are becoming more mainstream products. This success brings added pressure in terms of delivering a consistent, high quality service to a much larger customer group. It is important that successful providers can demonstrate their ability to deliver on their promises to maintain consumer trust.

The thematic review is evidence that SIPP providers cannot afford to work on a ‘make do and mend’ basis. This may have worked in a pre regulation world where a smaller, niche market, of individual customers needed to be maintained, but the challenge now is much greater.

The SIPP industry needs to shake off the ‘cottage industry’ feel and be ready for much greater scrutiny of methods and its results in order to maintain and grow consumer confidence. Some providers are likely to fall by the wayside. How the industry responds is absolutely critical. Providers and trade bodies such as the Association of Member Directed Pension Schemes (AMPS) need to be proactive in demonstrating to the regulator and consumers alike that SIPPs can deliver the desired outcomes in terms of individual requirements in retirement.

Next month – a specific look at the quality of information provided by SIPP providers – specifically in terms of illustrations.