Toxic investments
The same cannot always be said of Ucis. The lamentably high incidence of toxic investments among Ucis and close substitutes – and the unjustifiable attempts to limit the scope of poor advice – are well-aired as, hopefully, is the point that they are concentrated in pockets.
Less well understood is that some platforms have accommodated such investments, not just bespoke Sipp providers who can at least easily identify these direct holdings (including, no doubt, with four quarters of nominal valuations in some cases).
Freedom and flexibility
Before that drags us down, let’s turn to the promise offered by the pension freedoms and consider whether the flexibility of bespoke Sipps will help or hinder.
The new rules obviously apply to all pension arrangements – whether flexible or ‘lite’, the Gad shackles are removed and costs such as setting and reviewing limits are gone. The way Sipps can respond to new financial planning opportunities will depend significantly on investment types held, the ease of valuations (needed for calculating lump sums and lifetime allowance usage) and the costs.
After a standoff over pricing, fees are now out in the open. Enterprisingly, this sees a continuation of the different pricing models of platforms versus bespoke. Increasingly, platform Sipps are “free”, often including drawdown options, with everything covered by the platform fee. In general terms this is likely to work out cheaper for lower fund values but at a certain point fixed fees will be more economical.
Not what you expected
Pricing models don’t provide the insight you might expect. There are reasons to choose platform or bespoke Sipp not related to price – investment and client management tools on the one hand, bespoke investments and a different service model on the other, for example.
Bespoke investments are not necessarily non-standard in capital adequacy terms – for example, at least some commercial properties. Taking that example, though “standard”, properties are nonetheless not cheap or easy to value. A commercial property valuation might cost £1,000 and could be considered current for six months.
Even with a large fund and a handsome yield, that’s too much cost and not enough latitude to phase benefits every month in a tax-efficient combination of lump sum and taxable income. Ironically, the flexibility to invest in property means that a decision will have to be made as to whether the financial plan has to bend to the investment or the investment be given up.
The new rules applicable on death may well encourage Sipp property investors to stick with their investment with the thought of potentially passing it on tax free or using the yield to support income payments, as the case may be. So it can be speculated that they are likely to take their pension commencement lump sum in one go or in very few tranches, willing to compromise on gross roll up.
