Corporate wrap should not become the next oversold product, warns Fiona Tait, business development manager at Scottish Life
Until recently group Sipp was the “hot product”; now it’s corporate wrap. But is it just a fad or will it dramatically change the market?
Both are employer-sponsored arrangements offering a range of investment options for the employees of a particular employer. The ’GSipp’ is aimed at sophisticated investors who are used to managing their money, and has already attracted the attention of the FSA for carrying higher charges where the additional facilities are not used, or not appropriate to the customer. Is a corporate wrap just the same, and will it attract the same investors?
The ABI market share statistics on GSipp don’t make good reading for any organisation that has invested significantly in this market. It’s also worth noting comments in the editorial of this magazine’s June 2010 Corporate Wrap Forum supplement: “The big overarching question that corporate wrap poses for providers’ and advisers’ businesses is will it do for group pensions and wider benefits packages what Sipps did for individual pensions?”
This question may lead some cynics to make the connection to the FSA’s thematic review of pension-switching advice. While that review was in relation to the individual pensions market, the same principles apply to the corporate market – unnecessary costs, attitude to risk, ongoing reviews etc. This means it is essential to look very carefully at which employers, and employees, a corporate wrap would really be suitable for.
A corporate wrap could be very valuable in addressing this need. Give employees access to a simple, flexible, highly visible, one-stop-shop for all their savings needs and they are more likely to sign up, and stay signed up. From the employer’s point of view it demonstrates concern for the financial welfare of their staff and should boost staff loyalty. In this respect a corporate wrap looks like it could have the potential to reach a much wider demographic depending on the degree of complexity it offers and the costs associated with this. Corporate wraps can offer the same investment flexibility as GSipp but also offer access to more than one tax wrapper.
Much has also been written about whether Isas, offshore bonds or pensions are the best solution for saving. The answer is of course that each may have a place in a long term savings plan, and access to all of them within one overall plan is a great advantage and more likely to appeal to a wider range of employees than a GSipp. The GSipp option, which offers a wide choice of assets but only one tax wrapper, is suitable for a relatively small proportion of the overall workforce.
In order to address the savings gap, the solutions offered in the corporate market will evolve in the run up to 2012. Whether these will be “corporate wraps” remains to be seen
Whilst the extra choice of a corporate wrap is good, the additional complexity may be unhelpful, or worse. Many employees in a typical workforce may be confused, and possibly deterred, by too much choice. And there is a particular problem if the additional choice comes at an additional cost. If the more expensive features of the plan are not needed, why provide them?
To be successful, the corporate wrap solution needs to be entirely customer focussed. It should deliver what employees want, without unnecessary extra complexity or additional costs. What is certain is we don’t need another GSipp. And if that is all corporate wraps deliver then they will have limited suitability. Those providers who seek to offer a highly engineered solution, with several tax wrappers and even more investment choice, are likely to be restricted to the same narrow market. In order to address the savings gap, the solutions offered in the corporate market will evolve in the run up to 2012. Whether these will be corporate wraps remains to be seen.
It’s highly likely that many advisers and employers will identify that a “one size fits all” solution is not appropriate. In the same way that advisers are increasingly recognising the merits of segmenting their individual client base, segmentation can be a very important tool for employees of a corporate client.
For some of these employees, as for some clients of a typical IFA, wrap will the ideal solution. But for many others, employees as well as individual clients, there is a simple, low cost corporate savings vehicle widely available. It is called a group personal pension.
Employers can, and do, play a significant part in boosting savings within the UK and a corporate wrap is likely to appeal to more employees than a GSipp, especially if it is designed to meet their real needs. But there will often be different segments of employees with differing needs and for many employees, a simple solution is likely to be more appropriate than a highly engineered but more expensive option.