One of the bigger success stories in recent years has been the growth in SIPP business
Although SIPPs have been around for over a decade, the last couple of years have seen them really capture the imagination. Just look at recent figures from three of the biggest providers in the pensions business.
In the last year, Standard Life increased its number of SIPP customers to 147,000, a rise of 22 per cent from the previous year. The funds it has under management for its SIPP business grew from £16.4 billion to £18 billion.
Having just passed the 10 year anniversary of its first SIPP, Hargreeves Lansdowne has over 120,000 SIPPs on its books. SIPP take-up continues to grow at a significant rate. The group manages more than £26 billion.
Aviva has recently renewed its contract with Citi to handle the administration for its consumer investment service for a further ten years. It’s hoping to attract a further £1 billion of investment through the launch of a new SIPP.
It’s not just the big boys who are profiting
Even smaller SIPP providers are cashing in on the act.
Rowanmoor Group, a smaller specialist provider, has reported its largest yearly increase in scheme take-up in its six years of trading. It's recorded a 107% rise in the number of schemes written in its trading year 2011/12. It now has more than 6,800 schemes under its control, with assets under administration of £3.4 billion.
Whilst this growth is all very impressive, the vast majority of SIPP money is held in stockmarket funds. Which means most SIPP holders are missing out on using their money to invest in far more interesting and potentially lucrative areas like property and business.
Investing on the stockmarket is tricky, to say the least
In the current climate, there’s huge volatility. Share prices can rise and fall on a whim and that can decimate the returns of even the most cautious of portfolios. It needs full time management to get it right, and it’s questionable whether even that’s enough to deliver sustainable profits.
Most SIPP holders are successful people in their own right. Earning good incomes at the top of their professions or in their own businesses. Yet few of them became successful through stockmarket investment. Here’s the point. If they’re that good at it, they’d almost certainly have given up their day jobs for a role in the stockmarket, where successful fund managers’ incomes can reach eye-watering proportions.
It leads to an thought-provoking question
Why do people choose a ‘self-invested pension’ through one of the big insurance companies?
If it’s to gain access to stockmarket funds so they can ‘play the market themselves’, surely a better bet would be to choose one of the discount brokers who offers ‘cashbacks’ on charges.
If it’s to ensure a higher return through managing their money themselves, chances are they’re facing disappointment. For even full time professional fund managers often admit to getting the market movements wrong, so an ardent amateur has much less chance of success.
If it's to invest outside of the stockmarket in areas like property and business, the figures suggest only a tiny proportion of SIPP holders has taken advantage of the flexibility that a SIPP provides. Yet of those that have done so, many report being very pleased with the result, producing higher returns at lower volatility in both property and business investments.
A SIPP is a wonderful vehicle that puts you in control of your money. But if take out a SIPP and you simply continue to invest in the stockmarket as you did before, why on earth do you think that your returns are going to be any better?
As Albert Einstein is reputed to have said: “Insanity is doing the same thing over and over again and expecting different results”.
It’s time to change your thinking.
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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