The market for self-invested personal pensions (SIPPs) has, on paper, been a real boom area over the last three years. Exponential growth from a very low base had created a market with £50 billion in assets under management prior to the Q3 2008 stockmarket shake-out. Growth has been driven by pension simplification, the demise of occupational pension provision and the recognition among more sophisticated financial services consumers of the need for increased self-provision. Other major drivers have been advances in technology allowing lower-cost and even self-service administration of pension funds, alongside consumer demands for flexibility and ‘individualisation’ of their pensions.

Closer examination, however, suggests reasons why all is not quite as positive as it seems. Blurring of definitions with other personal pensions is part of the explanation. Another factor is ‘fashion’ – SIPPs are flavour of the month. By far the most important driver, however, has been the ‘recycling’ of existing pension fund money and consolidation of separate pots of money into a single wrapper; and the wrapper of choice has often been a SIPP. New pension money has been in relatively short supply in this part of the pension jungle as it has elsewhere.

This report examines how and why the SIPP market has developed so powerfully over the last three to four years and offers a critical and realistic assessment of future potential in the context of the retirement market as a whole.

Key issues:

SIPPs have been a major beneficiary of the simplification and rationalisation of the pensions landscape over the last three years.

The increasing focus on the need for self-provision in the retirement market has been a major driver.

Since A-day, for workers with sufficient accumulated funds, SIPPs have proved to be a popular vehicle for consolidation; as a result, much of the apparent growth in the market has been illusory.

The flexibility of SIPPs and the fact that they can be used well into retirement as a vehicle for drawing down income instead of purchasing a retirement annuity have enhanced their attractiveness; technology has allowed the development of lower-cost SIPP variants and significant self-service functionality.

Very active product development of this type, however, has on the one hand been a stimulus for the market but on the other has led to concerns about mis-selling, product suitability, understanding of risk and product understanding.

Nevertheless, there is genuine huge growth potential and it is easy to see a scenario in which SIPP eclipses all other types of DC provision (including occupational, if group SIPP develops as some commentators predict) creating some profound challenges for the insurance and fund management industries long into the future.