The first SIPP under the Nigel Lawson regime was set up almost thirty years ago. There is some dispute over which company actually established the first SIPP but I can say with confidence that there were five original members of the SIPP Provider Group (SPG) which I helped establish and of which I was the inaugural chair.
I don’t believe any of those five founding members are now open for business – demonstrating once again as is so often the case that it is the pioneers that get scalped. Prior to 1988 it was of course possible to provide some form of self-managed fund using a life company policy and I believe Suffolk Life, one of my previous employers, was the first company to adopt this route in 1975.
The self–invested personal pension (SIPP) was not formally defined for several years after 1988 and indeed in the early years there were some who favoured the label self-administered personal pensions (SAPP) but in the end the SIPP won! For the whole of the first decade of its existence the SIPP was a fringe product.
The market place was dominated by insurance company based personal pensions generally invested in the insurance companies own funds – which were often very expensive. Establishing the actual cost was difficult as for years the regulatory framework did not permit own charge illustrations. The introduction of income drawdown in 1995 –after failed attempts by some innovative providers to introduce a “self-managed annuity” – provided a boost to the SIPP market but even by the end of 1999 there less than 50,000 SIPPs in existence.
At that point SIPPs were still subject to a list of “permitted” investments which the SPG had agreed with HMRC. In 2001 new tax regulations were passed for stakeholder pensions which covered SIPPs and the list of “permitted investments” was enshrined in the regulations with a few minor amendments. HMRC no longer had any discretion to “approve” investments and the regulations also defined a SIPP for the fist time. It was around this time that the first investment platforms started to emerge and over the next 4 or 5 years they were a major factor in the growth of the SIPP market.
However there is little doubt that the major catalyst for the growth in the SIPP market –and arguably for most of the problems that have subsequently arisen was the introduction of pensions simplification in April 2006 (A day). The existing rules on contributions and investments were torn up and new and very generous limits on contributions were put in place with the only restrictions on investments being the new “taxable property” rules. But perhaps the most significant change was the abolition of the restrictions on who could be a provider and the introduction of the new regulated activity of operating a SIPP.
For the year from April 2006 to April 2007 when the new regulated activity applied for the first time it was a free for all – and yet surprisingly I am unaware of investment scams or frauds at that time on anything like the scale that we’ve seen during the period after the FSA’s first thematic review in 2009. There may be some lessons to be learnt there which I’ll return to in a future article.
I’ll conclude with some more market statistics. As at April 2006 I recorded a total of just over 220,000 SIPPs of which only 130,000 were the streamlined or platform based variety. Total SIPP assets were around £35bn –about 10% of today’s figure.
I’ll look at what happened over the next 13 years or so in a future article. For now it seems that we have almost gone full circle with the apparently imminent but much postponed launch of a SIPP investing via a platform into a range of in-house passive funds. That seems a remarkably similar proposition to the old-style personal pension rather than a SIPP – the main difference being that it will most certainly be decidedly cheaper.
But more on that and a look ahead to the fourth decade of SIPPs through my crystal ball next time.
John Moret is principal of MoretoSIPPs consultancy and one of the UK's most experienced SIPPs experts, commentators and speakers. He has worked for Suffolk Life and several other SIPPs providers. He is also chair of an advisory business Intelligent Pensions and of CX insight business Investor in Customers.