Impact on Sipps
Although the auto-enrolment initiative started in October 2012 it is being phased in over the period up to February 2018, starting with larger employers. With it being in its infancy there is still a lot of speculation over whether it will be successful. While opt-out rates are so far encouragingly low, that may not remain the case as it is rolled out to smaller employers.
Ultimately though, one way or another, auto-enrolment will have an impact on the current pensions landscape and speculation can be made about what effect it will have on the Sipp market.
It could be said that those who take the opt-out route – whether because of lack of affordability on grounds of essential spending, unwillingness to sacrifice discretionary spending or because they believe short-term saving outweighs pension savings – do not represent a real loss or threat to the Sipp market as they were not participating in this sector anyway. If they cannot be attracted to stay in a relatively easy and straightforward auto-enrolment option with the benefit of employer contributions, then the Sipp route is not going to be a likely panacea.
As far as group Sipps go, there is an opportunity for them to benefit if they are operated as a qualifying workplace pension scheme. At the end of last year, statements made by TPR indicated that group Sipps would not be suitable for auto-enrolment, but this was later qualified such that group Sipps can be suitable for auto-enrolment where they are built around a value-for-money default fund, compliant with the Department for Work and Pensions (DWP) guidance and do not require active engagement and decision making.
Despite such qualified statements, there is still room for interpretation. It is therefore interesting to note that the DWP issued a paper in July, ‘Quality standards in workplace defined-contribution pension schemes’, looking at introducing minimum standards that may help lead to further clarifications. Ultimately it can be anticipated that group Sipp providers who are operating in the mass market workplace pension space will adapt and change their product and services to suit.
Dumbing down
A potential threat is where either group or individual Sipps are currently being used as a workplace pension scheme but will not be suitable as a qualifying workplace pension scheme for auto-enrolment purposes or where the employer does not wish to make such a scheme available to all employees. The risk here is that the employer may opt to ‘dumb down’ its pension offering by choosing a simple low-cost auto-enrolment scheme for all staff.
