Jonathan Watts-Lay, Director, WEALTH at work answers questions on Group SIPPs.
1. There has been a lot of turmoil among SIPP providers recently with several being bought/ put up for sale. What impact is this having on the Group SIPP market?
Workplace SIPPs have grown in popularity in the last few years for those companies
looking for a pension with more flexibility for its employees. Consequently, this meant that more
providers introduced SIPPs.
However, the real benefit of the
Workplace SIPP is a combination of allowing different functionality and choices
for different groups of employees. For example; tailored fund choices, transfers of company shares,
consolidation of pension pots and the ability to run a
Workplace ISA alongside. All of this functionality should be provided at low cost
and supported by
financial education to show how the
Workplace SIPP can drive value for the individual. For example; by providing two
lots of tax relief by transferring Share Incentive Plans into pension. Unfortunately many SIPP
providers have viewed it simply as a way to sell more pensions and not provided the broader
functionality needed in the workplace. Those providers with full functionality such as
WEALTH at work are much better placed to deliver what clients are looking
for.
2. What factors do employers need to bear in mind when choosing a Group SIPP provider?
Choosing a
Workplace SIPP can be a very cost-effective way of providing a benefit for
employees within a flexible package of savings vehicles, such as share schemes and ISAs. A
Workplace SIPP can offer employees investment choice (albeit this should be
limited in the workplace as too much choice leads to inaction), diversification of company
shareholdings and tailored functionality for different employee segments. It should be supported by
financial education and advice at retirement to ensure employees understand their
retirement income options. For employers, there are cost savings, as limited effort is needed to
run a successful implementation.
When selecting a
Workplace SIPP the following should be considered:
- What are the costs?
- Will fund selections be actively managed? As providing employees with a universe of say 2,000 funds can be overwhelming.
- Will it accept both employee and employer contributions on either an individual or group basis?
- Will it accept in-specie transfers of shares from your company share schemes?
- Will it accept transfers from legacy pension schemes including protected rights funds?
- Does it have an easy to use online interface for both employers and employees?
- Is financial education provided to ensure employees understand the value of the offering and how it can link with other benefits such as share schemes?
- Is regulated advice available, particularly to support employee decisions at retirement?
3. What do you think are the key things employees should know about Group SIPPs before
deciding to use one as part of their retirement planning?
Workplace SIPPs are a tax efficient way to save for retirement. They work in the
same way as any other traditional pension in terms of tax benefits, contribution limits and
retirement income options but they offer greater freedom and control in comparison.
The checklist above equally applies to employees. For example, costs, fund selection,
contribution methods, ability to transfer shares and an easy to use interface. This should all be
supported by
financial education and advice so employees can make informed choices. If this
full level of functionality is available employees should seriously consider the
Workplace SIPP.
