DECEMBER 2011 |
www.opp.org.uk WORDS | Daniel Kiernan
The pension pot I
nvestors are now increasingly considering putting their wealth into directly held alternative investments - tangible assets that provide diversification away from the property and stock markets and that often promise high returns. This growth in interest in
alternative investments has coincided with the looming pensions crisis as life expectancy increases and pensions become more expensive. Many people are realising that their pension provision may be inadequate. For example, a retirement fund of £100,000 would buy an income of only £6,000 annually at today’s annuity rates. And to achieve an income of £20,000 in retirement requires a pension pot of £500,000. So, at the same time as consumers are becoming more interested in alternative investments, they are also keen to take action on their pensions and are taking steps to consolidate frozen or underperforming pensions into a self-invested personal pension (SIPP). Alistair Burns, CEO of The TailorMade SIPP, has this year seen a 69% increase in clients transferring their preserved or under-performing personal pensions into a SIPP. As part of the advised process they must establish why clients wish to go down the SIPP route - and the desire to get into alternatives is the most often cited reason (alongside the underperformance of current investments and the desire to consolidate funds.)
All of this growth in SIPPs and alternatives represents an opportunity for overseas property agents and advisors. With a small amount of effort, agents anywhere can add a SIPP offering to their proposition. Regulated advisors can advise clients on the benefits (or otherwise) of setting up a SIPP and transferring frozen assets into it. Non-regulated
agents can use a SIPP transfer agency – such as TailorMade SIPP mentioned above – to take care of this process for them. The client will then be handed back to the agent with the SIPP funds in place and awaiting allocation according to the client’s investment objectives. Many advisors are wary of
alternatives as the market is now growing quickly with opportunistic offers. In 2007 there were around 50 directly-held alternative investments being distributed that could be
“The FSA has been very publicly clamping down on advisers promoting UCIS investments”
held within a SIPP and today there are nearly 300. These range from excellent investments; to projects that have been rather naively put together; to outright scams. As Peter Robinson, head of Consultancy at Intelligent Partnership explains: “We reject most of the investments we are offered and we aim to add significant value to those we do work with; some are completely unsuited to the retail SIPP market and should never form part of a robust retirement plan. It would be completely irresponsible of us to assist in bringing them to market.” Consequently some advisers still view alternatives with suspicion and as a risk for both them and their clients. Steps have been taken to try and improve this situation. The FSA has been very publicly clamping down on advisers who have been promoting UCIS investments to the wrong audience and significantly, SIPP providers have now been asked to take more responsibility for product governance. It is now no longer acceptable to just verify if an asset is SIPP acceptable - SIPP providers now have to undertake
BUSINESS
There has been a marked increase in consumers choosing to purchase alternative investments with their SIPPs over the last three years. And with an average SIPP size of £70 - £80,000 and over 800,000 SIPPs this is a signifi cant new market for advisers.
their own due diligence. Robin Hooper, CEO at The Lifetime SIPP Company, says “The range and nature of investments presented never ceases to amaze. As a SIPP operator we need to understand what we are investing into as trustees, whether it be forestry, farmland or perhaps” he jokes “left handed tea- cups from Taiwan”. To assist in this area Intelligent
Partnership have launched a joint venture with Enhance Solutions, SIPP Investment Platform Limited (SIP). Kevin Jack from SIP explains; “Over the last couple of years the demand placed on SIPP operators has grown immensely and SIP aims to provide in depth analysis on alternative investments on behalf of SIPP operators so that there is at least some form of product governance audit trail.” Further security can be built
in to alternatives through the use of Trustee or Bond structures. Under these types of structures the product provider submits to having investor monies paid into a trustee client account and only
Daniel Kiernan is the Chief Investment Analyst at Alternative Outlook as well as being a director of Intelligent Partnership.
released to the provider upon adherence to strict criteria as laid out in the Investment Prospectus. Similarly, all of the revenues the asset generates are paid directly to the trustee with investor returns extracted before the balance is forwarded onto the provider. The Trustee will also typically take a first charge over the project and its assets so that, in the event of an unresolved default, the project can be liquidated with the investors reimbursed from the proceeds. The rise of the SIPP is creating liquid investors and with the widely predicted growth in SIPP numbers the demand for ‘alternatives’ as a hedge against traditional pension investment offerings will no doubt continue. Advisors should take notice and consider if alternatives are something they would like to include in their offering to clients.
ALTERNATIVES | 25
Coming of age | The number of people buying alternatives via SIPPs is increasing
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