January’s pension fund deficits all-time low of £31.8bn is conclusive proof that defined benefit schemes have life in them yet, says experts

Those appointed to the National Pensions Saving Scheme (NPSS) delivery authority tasked with setting up personal accounts (PAs) in 2012 have a more difficult job than those delivering the London Olympics, pensions experts have said.

The last time PM did a survey on bulk buyout (BBO), it described activity in the market as similar to waiting for a bus: there’s a long wait and then everything happens at once.

The self-invested personal pension (Sipp) regulation being implemented on April 6 is fast becoming a business opportunity for some players to take over their competitors because, according to some, the smaller firms look set to “wither and die on the vine”.

The British public are more concerned about their future financial security than terrorism, family concerns or health.

Three-quarters of Legal & General’s contracted out customers have specifically chosen to remain contracted out of the state second pension (S2P).

Despite frequent high profile defined benefit (DB) scheme closures, a third of DB schemes in the private sector are still open to new employees.

The Actuarial Profession has raised concerns about scheme members being short-changed at retirement because of a lack of understanding and transparency.

Royal Mail has publicised its intention to consult on closing its defined benefit (DB) pension scheme to new members in an effort to plug its growing pension deficit which stands at £6.6bn over 17 years.

• Heywood has signed a seven year, £4m contract to provide the Northern Ireland Department of Health, Social Services and Public Safety Pensions with pensions software. This is Heywood’s third Northern Ireland contract.
• North yorkshire pension fund has appointed UBS Global Asset Management to manage a £49m global tactical asset allocation mandate. The fund’s long-term strategic asset allocation remains the same.
• Telent has chosen Xafinity Paymaster to provide pensions administration services to its 63,000 members. The five-year contract includes the transfer of existing pension administration operations with 29 Telent employees moving to Xafinity under TUPE.
• Universities superannuation scheme (USS) has reappointed JPMorgan Worldwide Security Services as global custodian for £24bn of its internally managed assets. The company has provided services to USS since 1995. JPMorgan will also extend its role as custodian to the £3.6bn London Pensions Authority.
• Garvins will provide actuarial services for Gleason Cutting Tools’ £15m defined benefit pension scheme. Gleason previously used MHRC for actuarial services.
• Neptune investment management announced it has reached £1bn in assets under management. Last year it secured six UK pension scheme mandates in as many months and began operations in 2002 with £25m under management.
• Russell investment group has awarded RCM to run its €414.4m UK high alpha mandate. The RCM UK high alpha product will form part of the Russell RIC UK equity fund.
• Global operations and Administration has completed the acquisition of Magenta One with the aim of extending its services to a global client base. The subsidiary will now trade as Magenta One Global.
• Hymans robertson has replaced Hewitt as investment adviser to the £80m Fujitsu Technology Solutions International pension scheme. Hymans will advise on all aspects of investment including strategy, structure and manager selection.

Clerical Medical has closed to new group pension business, attributing the move to reduced margins and the high cost of administering new business.

Established annuity provider Partnership Assurance has enjoyed a record year with sales increasing by 30%, while new player Living Time has proved a winner in delivering high levels of income.

• New Star is to offer a UK-authorised international direct commercial property fund to UK investors. The New Star International Property Fund will be the first to allow UK investors access to such investments through a tax-efficient Financial Services Authority authorised retail fund.
• Research by Credit Suisse has revealed that ownership structure affects both company and stock performance, and that family-owned companies tend to achieve better returns and higher profitability in the long term than companies with a fragmented shareholder structure.
• Way Group is offering commissions of between 3% and 7% as part of a campaign to address independent financial advisers (IFAs) on the dangers of inheritance tax (IHT) liabilities for older clients.
• Figures from Deloitte show that IFAs and personal finance providers were among the worst affected sectors in 2006, with nearly 50% of companies going into administration.

Investment companies operating in the property sector are likely to see good returns in 2007, but there will be a marked decrease in performance compared to the robust figures of the past few years.

Green unit trusts have finally swung into the mainstream as a screened fund tops the UK All Companies sector for the first time.

As China celebrates the Year of the Pig, fund managers are predicting 2007 will mark another year of high returns for Chinese equities.

Returns from Scottish Widows Investment Partnership’s (SWIP)’s unconstrained UK equity product look good, but experts question whether the product can continue to perform over the next few years.

Close Investment’s acquisition of Aon’s UK-based multi-manager business might necessitate a reshuffle and the need to rethink the fund structure.

Conglomerates find little favour with equity fund managers. However, their form is still relevant, especially in emerging markets. We have examined the just­ifi­­cation for such a stance and how a business struc­ture that has adapted to a range of bus­iness cycles and markets has performed.

Barclays Capital has published the key results of its annual Equity Gilt Study, highlights of which include research into the efficacy of hedge fund models, making the best use of derivatives and analysis of the growth of liability-driven investment.

Great-West Lifeco, a subsidiary of Power Financial Corporation, has acquired Putnam Investments from Marsh & McLennan Companies for US$3.9bn (£2bn). The deal is expected to close in mid-2007.

Emerging market risk assessment is patchy

MetLife has launched the UK’s first retirement product that promises investors a return of at least 100% of their investment and the opportunity to lock in investment gains over a period of time.

Ignorance is preventing occupational scheme members from gaining maximum tax relief, which could result in them losing millions of pounds.

Invesco Perpetual and Midas Capital Partners have invested £14m in Sipp provider AJ Bell in a deal that values the business at £78m.

Wealth managers could be building stronger relationships with their high net worth clients by offering better pensions advice.

Simplification has proved a boon to the advisory community with the vast majority experiencing major growth in the area of retirement provision.

Raising Standards of Pensions Administration (RSPA), the charity formed to improve pension scheme administration, has launched major initiatives designed to support the industry.

Friends Provident has launched a guaranteed bond, offering customers the benefit of stock market growth and the secure return of their initial investment on death or after five years.

Although there is considerable debate about the nature of the so-called ‘pensions crisis’, there is little doubt that something must be done.

The rebates paid for contracting out will change from April 6, and for the next five years. In the case of personal pension and stakeholder pension plans, the good news is that rebates are significantly higher than in the previous five years to reflect ever improving mortality and lower expected returns.

If we could cut out all the flimflam, life for professional advisers and their clients could be a lot simpler – and the wrap is one product that will be at the forefront of any future progress

I read a harrowing tale from America the other day. It was all about a hunter who shot a duck and then put it in his fridge only for his wife to find two days later that the duck was still alive. The duck’s name was Perky, by the way, and she’s become a bit of a celebrity in the States.

The temptation to ignore section 255 of the Pensions Act 2004 is one to resist as this piece of policy is a great way to give the life assurance benefits of your scheme a spring clean

Traditional asset classes are experiencing lower returns, leading pension funds to look towards alpha strategies as part of their future investment plans

As the parties edge closer to agreement on pensions reform, the political spotlight is turning to the chancellor’s last major act: the comprehensive spending review

In today’s stagnant fixed income environment, the secret to profiting is to keep an eye on market sentiment and look out for anything that might move prices by rocking the boat

This year the bulk buyout market has accelerated, helping reduce risk for pension schemes and creating healthy competition in a rapidly expanding marketplace

With pensions becoming ever more risk conscious, it seems the future of DC pensions will become predominantly contract-based

Developing a hybrid product for the at-retirement market

Trustee boards are all different, and unfortunately so are their skill levels, knowledge and training

The methods and controls for managing risk can have a huge impact on the administration and success of pension schemes

The Financial Ombudsman Service’s power to penalise financial advisers to a shocking degree amounts to discrimination

For most investors high returns normally come with high risk, but not all risks are worth taking...

Andy Briggs has replaced Nathan Moss as managing director, marketing and distribution at Scottish Widows. Moss will be taking up a senior position within the Lloyds TSB Group.

HSBC Investments has poached several top analysts to boost its multi-manager team.

Lehman Brothers Asset Management has made two high-profile appointments to manage its UK and Iberian operations.

Welcome to this special Pensions Management supplement on self-invested personal pensions (Sipps).

1. A-day brought mass-market appeal to pensions, generating interest across the population. Arguably, the biggest benefit was the ability for anyone to contribute to a personal pension.
   This is great news for many, due to the generous tax relief available. Investors are becoming more sophisticated and want to know that they have control of their investments. They are less interested in the actual wrapper, and more in the underlying investment. We expect these new personal pension investors to use Sipps – and they have been doing so in their thousands.
   Although many will start to use the full range that self-investment offers, others are opting for a deferred Sipp: essentially a personal pension with an in-built Sipp option that they can turn on when they want to. These investors have the best of both worlds and I we expect this to become the norm over the next few years. It is not a question of personal pension or Sipp but having both.
2. Sipps are likely to become the answer for all pension investors and we expect to see cradle-to-grave solutions. The product that an individual buys when they first start saving should be able to change with them as they progress through life and become a more sophisticated investor. It should balance with other investments in their portfolio, becoming the income vehicle as they start to slow down in the run up to full retirement, and possibly even mutating into an asset-backed annuity when they are ready to take that final step.
3. The structure of the Prudential Sipp (provided through the Pru Flexible Retirement Plan and in partnership with Suffolk Life) means that we have always been regulated. Providers can be divided into three categories: Sipp-regulated; Sipp not regulated but provider operates other regulated business; and Sipp not regulated and provider also not regulated.
   Those in the first group are unlikely to undergo any major change. The second group will have to spend time getting up to speed with regulation but they will be accustomed to dealing with these sort of requirements, so it should not be too much of an issue for them. Those in the third group may find themselves in a difficult position on Sipp B-day. We expect to see more of mature books of Sipps being transferred to the specialist Sipp providers. There will be less true providers and more white-labelling. Advisers, too, may find it more difficult to get up to speed with Sipp regulation and what this means for them and their customers.
4. We expect the Sipp market to continue to grow. Although many employers will put group Sipp options in place as their employees demand more control, we expect only a small proportion of employees to use these options. The real growth is in mass affluent and high net worth individuals setting up Sipps either on their own or in conjunction with a small group of other individuals (similar to the old small self-administered schemes market but without the complex rules and joint funding issues). We expect to see more small and medium enterprises setting up small group Sipps, where the investments are integrated with the efficient handling of company assets.

1. Prior to A-day, Sipps were restricted to the realm of the pension investor who was not a member of an occupational pension scheme. They were most often used by individuals running businesses who wanted to include their own commercial property in their pension portfolio. Since A-day, concurrency changed that. Now Sipps are open to a much wider audience: to all people who have ‘relevant earnings’, including members of com­pany pension schemes.
   Sipps are increasingly likely to become the dominant form of personal pension because they allow for a substantial and beneficial combination of share schemes with pension arrangements.
2. We view the development of contributions to Sipps in the form of shares from approved share schemes as a major innovative requirement, because the ability to move shares directly into pensions can have significant tax advantages. Consequently, we expect these arrangements to be used increasingly by advisers and their clients.
3. Sipps become regulated by the Financial Services Authority (FSA) as of April 6, 2007. A firm recommending a Sipp as a ‘packaged product’ has to provide standardised, clear and complete information about the type of advice it is giving, the form of charging (commission or fees) and certain corporate information. This helps clients to choose between competing products. Regulation also introduces statutory and regulatory protection. Therefore we envisage that current Sipp providers will have to charge their products more competitively. We believe charges will become transparent and costs will be reduced as a result.
4. Because of concurrency, the Sipp market will develop largely in the corporate environment rather than Sipps being offered as ‘group Sipps’ where ‘group’ refers merely to a common source of contributions, and the concept of the workplace Sipp will develop. This will include not just the common source of contribution but will also allow for share scheme ­contributions. The workplace Sipp must therefore have four main component elements or cornerstones:
   - a group Sipp wrapper;
   - an underlying investment platform that allows the employee to retain com­pany shareholdings in the pension or to diversify;
   - an educational programme to enable employees to understand the new facility;
   - and the ability for an employee to have personal strategic planning to enable them to make best use of the tax breaks available to them as individuals.

1. The Sipps boom started a couple of years ago. It was driven initially by technology improvements. This improved e-commerce has allowed Sipp providers to compete with existing individual pensions on cost, but also to offer greater simplicity and functionality in the administration of investors’ pension accounts. Sipps have the obvious attraction that they offer a wider range of investment options than existing pensions. These virtues were all in place before A-day, and were already driving business volumes upwards, but the new A-day rules gave the whole process a turbo charge.
2. The bulk of Sipp business is now ­moving away from the HNW market where it initially developed, and Sipps are becoming much more of a mass market proposition. The two key areas of ongoing development are likely to be in accessi­bility and in refining the investment propositions.
   Accessibility is going to develop, both in terms of making it easier for investors to get their money into Sipps and in terms of the ease of management once the money is in the Sipp. On the investment front, the key developments will be around helping investors and their advisers to put together the right investment solutions quickly and efficiently.
3. Regulation will reduce the number of Sipp providers. Not all providers have sufficiently well-developed businesses to survive the additional challenges that regulation will present. The Sipp pro­viders left in the market are likely to be the ones with the larger books of business, well capitalised and efficiently run. This should all be good news for investors.
   Charges disclosure is likely to exert further downward pressure on costs. The introduction of regulated status should also reassure investors of the security of the Sipp sector. All in all, it should be good news for investors, and for the providers that survive.
4. If anything, it may accelerate. Our experience is that new business has continued to grow since A-day. The industry has passed a tipping point and it is no longer attractive to offer a group pension – or in many cases an individual pension – if it is not a Sipp. Almost every product provider that does not already offer a group Sipp is having to play catch-up as they realise they cannot get by without one.
   In terms of new business potential, the accelerating demise of final salary schemes and occupational defined contribution schemes is going to provide the group Sipp market with fuel for continued growth for years to come.

1. The increasing appetite for Sipps is the result of investment freedom and access to unfettered collectives, as well as access to discretionary investment managers, who can take this responsibility away from financial advisers. In addition, post A-day there has been a raft of pension consolidation opportunities for high net worth (HNW) and mass affluent clients, who have transferred old-fashioned and costly personal and corporate pensions into more flexible Sipps that allow very broad investment principles and styles to be adopted.
   It is also thanks to the publicity of the possible (but now removed) investment in residential property that the public has become aware of the advantages of Sipps.
2. Sipps will be used in conjunction with wraps so that financial advisers and their clients can monitor their entire investment portfolio under one administrative platform. Sipps will increasingly become a function of an integrated wrap strategy. Independent financial advisers and clients are beginning to take advantage of the opportunities for consolidation of pension assets. The days when more than one financial adviser dealt with the same HNW client, with a proportion of that client’s accrued assets, is diminishing as clients seek more holistic and goal-driven solutions. Wrap is at the forefront of this change as an active enabler.
3. Sipp regulation might bring about a number of mergers and acquisitions of smaller Sipp providers because the demands of working in an unfamiliar regulated environment may prove to be too onerous for them.
4. Sipps will be developed as part of a provider’s wrap offering as more providers and financial advisers see the advantages of managing a client’s pension and non-pension investments within the wrap. Group Sipps will be offered by more providers and, as costs go down, will be seen as a genuine alternative to more traditional insured group personal pensions.
   I envisage group Sipps becoming the pension scheme of choice for the company executive, and they will be promoted heavily by fee-based benefit consulting practices as an alternative to closed final salary schemes.

The growing popularity of Sipps encouraged the FSA to regulate this former ‘cottage industry’. But what will be the impact on the Sipp market?

Rather than simplifying pensions regulation, HMRC and the Treasury are making it more complicated

Think Sipps are only for sophisticated investors? Think again – there are benefits for everyone

Simplification brought Sipps to public attention, but the secret of their appeal is just how many people can be included under a system that allows so much customisation