Suitability key for group Sipp growth

The growth of group Sipp will be restrained by the same suitability issues affecting the individual Sipp market, meaning they will only be rolled out where there is a genuine need, says Defaqto.

But the corporate Sipp market will inevitably experience further proposition development as insurers seek to stretch their GPP and individual Sipp experience into the workplace, according to a Defaqto report. It predicts smaller specialist Sipp providers will also target the corporate space with product developments in the coming year.

Group Sipp expansion is most likely to be amongst employers offering sharesave schemes for employees, particularly amongst FTSE350 companies. Group Sipps will also flourish in the few places where employees have need of pension asset classes other than collective investments.

Defaqto predicts competition will also materialise in the form of corporate wrap propositions, which it describes as ‘creating a similar buzz of enthusiasm in the market’. Group Sipps will be recommended by advisers where corporate Isas are also being offered, it suggests.

Defaqto says group Sipps’ future in the employee benefits arena has been spurred on by interest in the news that high profile UK employers, including GlaxoSmithKline and BT, have adopted them to accommodate share scheme options. An earlier Defaqto report found group Sipp the least favoured of the group solutions available to IFAs, behind both GPPs and group stakeholders, and it is still predicting take-up to be restricted because of suitability issues.

Matt Ward, head of pensions at Defaqto says: “Big employers are putting group Sipps in where there is a clear need, typically in the form of interaction with a sharesave scheme. But in the same way that suitability is under scrutiny in the individual market, so it is in the group Sipp sector. As a cautionary note advisers need to beware offering Sipp functionality in a situation where most members are only using their pension fund to save through a default fund. This situation mirrors the individual market’s issues of suitability. If there is no need beyond collective investments and no share scheme, then there will not be demand for group Sipps.

“However, developments in corporate wrap propositions will give group Sipps a boost. There are clearly opportunities for group product design in the run-up to the launch of personal accounts and these results indicate that there is room for a variety of group pension propositions in the future employee benefits market.”