Should the restrictions on tax relief be lifted Sipp providers can expect to see an increase in those saving beyond the age of 75, keeping their Sipps longer than today.
That summarises the key pension changes as announced in the Budget. But there are some other potentially significant outcomes that may follow.
The battle between Isas and pensions had looked a little one-sided in recent years and, even as the Budget brought in significant enhancements to pensions it also made two key changes to Isas. Firstly, the annual Isa contribution limit was raised to £15,000 for both cash and investment. Secondly, previous years’ contributions into investment Isas can now be transferred into cash Isas (before the Budget it was only one way – cash to investment).
How could this benefit Sipp providers? Some Sipp providers have diversified, effectively becoming platforms and offering investment Isas too. There is a real risk that many of those investment Isas will be transferred to cash over time, as investors seek greater security and accessibility. That would dampen revenues but those Sipp providers that did not diversify will remain unaffected.
No changes to the lifetime allowance were announced but it has never been under more pressure.
With a lower, sensible annual allowance of £40,000 the lifetime allowance looks increasingly akin to a tax on sensible saving and good investment performance. Should a future review of tax relief conclude that it should be set at one common level then the last scrap of justification for the lifetime allowance will be removed.
The lifetime allowance currently represents a highly unpalatable uncertainty for savers who start to approach it, knowing that positive investment fluctuations can bring them a significant tax charge. While there will be some who hold the view that this is adding benefit for just a few of the ultra wealthy, it is worth considering that there are already some savers who have exceeded the lifetime allowance level of £1.25m just by using their annual Isa allowance and investing very wisely.
But within the Sipp market there will be both winners and losers. Smaller Sipp providers are already under considerable pressure, built up by years of regulatory change, three thematic reviews and the soon-to-be published capital adequacy verdict. But those providers who charge fees based on the value of the assets and who have investors with low average fund sizes are also likely to be pressured. That demographic of Sipp investors is the most likely to withdraw more or all of their pension fund come April 2015, and a reduction in assets under administration will lower their revenue. If there is a reluctance to increase prices then there will be significant emphasis on acquiring new business to maintain their balance sheets.
