Money Matters

SIPPs have been on the rise for the past decade, and estimates suggest that half a million of us now have one. But the tide has turned in the past 12 months with a series of reports that have tarnished their image, culminating with the FSA ordering Freedom SIPP into administration.

I met with John Moret, marketing director at Suffolk Life sipp provider last week and he gave me a list of useful questions that individuals – unsure of the security of their sipp – should ask their provider.

1. How financially secure is your business?
There are around 120 SIPP providers, many of whom are small businesses often with just a couple of hundred SIPPs. Look for a provider who is not only established but has managed to remain profitable over the past 12 months.
2. SIPP providers talk about great service. How can I be sure that you are as good as your word?
A pedigree of winning industry awards is a good guide to a quality administrator. You should also search for those firms which have willingly opened themselves up to independent scrutiny – Investor in Customers is one such independent assessor.
3. Do you pay commission to my financial adviser?
Instead of paying commission which can bias independent advice, good SIPP firms offer what is known as Customer Agreed Remuneration. You agree a fee with your adviser, and typically the SIPP provider pays it from your pension fund.

4. How can I follow the progress of my SIPP?
We may be experiencing web 2.0 but many SIPP providers aren’t even online yet. In this day and age you should expect to be able to log in and view your SIPP portfolio and the assets within it. Online services also demonstrate that the SIPP provider is investing in their business for the benefit of their customers.

5. I’ve heard that mistakes with investments being incorrectly reported or simply being against HMRC rules can lead to tax charges. How can I ensure my provider will protect me from this?
Some SIPP providers will allow an investment manager to invest the SIPP money and rarely check which assets are being bought and sold, nor verify the accuracy of record keeping. A good provider will regularly reconcile the SIPP account, track the assets and adhere to robust internal controls to mitigate these risks.
6. The recent downpours have washed away some businesses, quite literally. What will happen if my SIPP provider is one of them?
Its something we all hope will never happen, but a quality SIPP provider will prepare for the worst. Ask for a copy of the Business Continuity or Disaster Recovery Plan to see what plans they have in place. The better providers will also maintain a second secure site that the business can be quickly moved to with minimal disruption if required.

7. I’ve heard that the quality of some SIPP annual statements can vary significantly, and indeed some not be sent to me at all. What should I look for in a good SIPP annual statement?
The best SIPP annual statements are those produced entirely by the SIPP provider themselves. They will have audited the investment values and transactions, and will produce a clear statement detailing the profit and loss in a transparent and easy to understand manner. Do not accept photocopies of investment manager statements just shoved into an envelope or folder.

8. SIPPs are supposed to be about flexibility, but I’ve heard that some providers place restrictions on how and what you can invest in?
There are now many different types of SIPPs, and at the budget ‘self-service’ end of the market, SIPP providers will often restrict you to investments available on their own platform or through their own broker. This can result in you paying additional costs on your investments that could be available at better value elsewhere. Good SIPP providers will not place any restrictions on where and how you invest, other than the restrictions laid down by HMRC.

9. Commercial property is one of the big motivations for starting a SIPP. What should I look out for?
Investing in commercial property via a SIPP can have many benefits, but there is a lot to consider.
Do:
- look for a provider with a track record on property acquisition and management
- ensure that the SIPP administrator has properly qualified staff – good ones will employ people with previous property and legal experience
- make sure they can help you put robust succession plans in place, and as a minimum allow you to keep the property in your SIPP in retirement
Do not:
- accept service from a SIPP provider where you are forced to use their recommended professionals for legal services, valuations and management
- select a provider who insists your property is sold when you retire
10. SIPP fees seem to vary greatly and can be confusing. What should I look out for?
Traditionally SIPPs have charged on a transactional basis as opposed to a personal pension from a life insurer which would typically take a regular percentage of your fund value; the idea being that you only pay when you use one of their services – buying an investment for example. Beware those providers that have very limited disclosure of their fees, or time cost many of their services. If you combine these with a company that has poor record keeping and a basic annual statement then you may not even be aware of what you’re paying nor what you are paying for.

11. I’ve seen lots of coverage lately about SIPP providers taking a slice of the interest that my pension fund is receiving. Is this true, and what can I do about it?
Virtually all SIPPs come with a bank account, very similar to a standard current account. This account is functional and is there to receive contributions and transfers, and to make payments to you when you retire.
Like your current account, these accounts often do not receive much interest but even so, look for a SIPP provider that clearly states what they pay you. The better SIPP providers will also offer access to a range of deposit accounts, and the best ones will offer you open access to the whole market, providing they are allowable investments. Don’t accept a provider that ties you in to just one account that pays virtually no interest.

For more coverage on Sipps visit the personal finance pages of ft.com