News of the recent adoption of a Group SIPP proposition by one of the larger employers in the UK, GlaxoSmithKline, will have been music to the ears for providers of these money purchase pension solutions. We predict that this will spark more activity with regards to the inclusion of these schemes within employee benefit packages, especially as the decline in final salary schemes continues. Similarly providers buoyed by the appeal and success of individual SIPP products will be keen to ‘spread the love’ into the group market. 

Although Group SIPP is being touted by some to be the new heir to the throne in the group pension market we think that due to the array of investment solutions available it is more likely to suit the needs of a small percentage of the workforce such as key personnel and directors.  As such it may very well emerge as a successful top-up scheme solution which can be run in tandem with a Group Stakeholder or Group Personal pension scheme. 

The major decision point for the employer when appraising money purchase scheme options will be around getting access to manageable and sound investment propositions and hence this is where development focus in the market is likely to be. It is a well known fact that employees will often not want or be able to make a decision on which funds to utilise, especially where no advice or guidance is available, meaning that default funds are regularly used. Therefore the discussion around the number of funds or asset types available can often be a futile one.

As far as Group SIPPs are concerned if the employee struggled to select investment funds from a choice of 30 to 40 funds previously, how will they choose from a platform of over 1,000 funds? 

In light of these issues an interesting development which may occur, mirroring its success in the individual SIPP market, will be for providers to offer access to specialist Discretionary Fund Management links through the Group SIPP. This could provide a ‘win-win’ situation where the employer will be comforted by the fact that they are de-risking themselves from investment decision making, the employee will not be inclined to pick from a list of funds and the DFM will be able to professionally design and run large portfolios which can be linked to employee goal targeting and attitude to risk.

Recent monthly sales figures from the Investment Management Association (IMA) showed that balanced and money market funds had been the main beneficiaries of record retail outflows in November 2007. This is the biggest sign yet that investors and IFAs of a nervous disposition are hell-bent on fleeing the perceived risk of equities and property investment for the safety of more cautious options. It would seem that the run on a certain bank last year allied with the current market uncertainty has created something of a trend for mass withdrawal of client funds from potentially sticky situations. No longer the famed British ‘grin and bear it’ approach.   The theme that would seem to be missing from the ‘stick or twist’ debate is that most investments should be for the long-term. A glance at past performance charts for equity and property investments over the past century should serve as a timely reminder of the ability for markets to experience occasional reversals in fortune without having a long-term effect. Reference to past performance over the long-term would at least provide investors with a level of comfort in uncertain times. (more…)