A SIPP for all seasons

17th February 2011

Why would an employer want to implement a Group SIPP arrangement for staff rather than a group personal pension?

Jonathan Watts-Lay: The Group SIPP provides employers with the opportunity to implement a single pension arrangement that is more likely to meet the requirements of all employees, removing the need to operate a number of different arrangements. There will be an element of segmentation. So for many staff the Group SIPP will mirror the virtues of a group personal pension in terms of core fund choices and pricing, while more senior employees may have access to wider investment choices. The Group SIPP can also help staff maximise the value of existing share related benefits where an in-specie transfer of shares is permitted from save as- you- earn and share incentive plan schemes.

Are there extra considerations employers need to put in place once deciding on a Group SIPP arrangement? Considering the increased investment flexibility that goes with a SIPP arrangement, should employers take steps to ensure employees have access to financial advice?

Jonathan Watts-Lay: As with any new staff benefit, success will depend upon securing employee engagement, ensuring staff are aware of the new benefit and its value. Effective communication and financial education will be essential. However, unlike the generic communication and financial education often supporting more traditional pension arrangements, the Group SIPP requires more specialist support, reflecting the segmentation of the workforce and the investment opportunities available. Specialist advice may also be required for those with more complex financial circumstances. For example, an executive transferring cash and share based awards into the Group SIPP or those choosing to enter drawdown products on retirement.

What impact do you think auto-enrolment will have on the Group SIPP market?

Jonathan Watts-Lay: Auto-enrolment will have only limited impact on the Group SIPP market itself. Group SIPPs will continue to support those employers seeking greater contribution, investment and income flexibility for staff. In some cases where NEST acts to provide basic pension provision, the Group SIPP may also be made available to serve more senior staff. Where employers are introducing workplace pension provision for the first time, the Group SIPP will be one of the options available to them. The low cost and flexible nature of Group SIPP will appeal to many employers, particularly where there is a genuine desire to promote employee savings and not simply comply with auto-enrolment.

How will Group SIPP arrangements enable employees to take full advantage of the relaxation of the age-75 rule?

Jonathan Watts-Lay: The Group SIPP provides a pension arrangement that not only provides flexibility in the accumulation phase but also at the time employees begin to take their pension benefits. The Group SIPP arrangement will support both the capped and flexible drawdown options proposed by the government while also serving the needs of the many who will simply buy an annuity. The drawdown options may mean that individuals remain invested for longer and in doing so, the Group SIPP will support on-going objectives providing greater investment choices. However, specialist support is required when taking pension benefits so that Group SIPP members are not exposed to a greater degree of risk. Support will increase understanding of annuities, encourage the take-up of the open market option and reduce the likelihood of individuals entering drawdown products without an appreciation of potential risks.