In the NEWS: Financial Planner Article
GROUP PERSONAL PENSIONS (GPP)
aka Group Self Invested Personal Pensions (GSIPP)
By Christine Hallett, CEO, Options Pensions
The pension landscape continues to change and we hear of diversions, changes to plans and car crashes in the media. What does it all mean and where will it all lead ?
Life was so simple…a product was simple to understand; it was simply invested; no one ever understood pricing, so no-one cared.
The world of pensions is now complex. Products are born; some surviving, others not; going through different transitions, just as providers of the pensions do, ending up with marriages, partnerships, divorces; some amicable, others not - the lawyers driving the end result needed, just as the regulators do.
The Group Personal Pension legacy is significant and in play with £billions of assets invested within these traditional GPPs, generally provided by the insurance company world. Advisers earned out of them, through the initial and ongoing commissions paid by the product providers. This is all about to change. Commissions are reducing and will cease to be paid by the end of 2016. How does this change the game plan and what opportunities is it creating?
GPPs have typically been used and been very successful in the company pension marketplace, providing workplace pensions. Following Auto-enrolment from 2012 and the need for a qualifying workplace pension (QWP), we would have thought that the traditional GPP via insurance companies would be best placed to take the lion’s share of this new opportunity, but that hasn’t been the case. The insurance companies have struggled to position and price their propositions. They have taken a number of different routes to market and made U-turns. The marketplace, confused turned to the large Master Trust arrangements to provide the QWP needed for companies that reach their staging date. NEST, NOW, PEOPLES PENSION and other smaller Master Trusts such as the Options Workplace Pension Trust, Amber Pension Trust, Close Pension Trust and more, have gained momentum, challenging the traditional providers.
From 2016 to 2018 there are in excess of 1.2 million companies that will be staging and requiring a QWP. There is a view in the marketplace that smaller companies are less valuable and early indications suggest that many of the traditional providers don’t want to offer terms, or play in this space. Many of these smaller companies are professional companies such as solicitors, investment companies, accountants, etc, employing professional specialists and already receiving or making contributions to pension schemes on an individual basis. They have built up pension pots and are generally earning a higher than average UK salary. They don’t really understand why they have to engage with the work associated with auto-enrolment, as they are already making contributions for their employees, or partners and directors.
What is there in the market place to make life simple for this group?
Enter the Group SIPP proposition.
No different from a GPP, it is however unique and should be used in unique situations.
What is a unique situation?
Scenario 1
An investment management company is already making contributions of 7% to a pension scheme for their employees. The employees are contributing a minimum of 3% - already above the minimum that needs to be reached by 2018. They are not inspired by the traditional insured group personal pension. They have a good understanding about investments. They require flexibility and freedom with a wider range of choices available, which they have identified through researching the market. Due to time constraints they do not want the headache of assessing all employees every payroll reference period, as an extra layer of admin, and extra cost.
They use contractual self certification by establishing a Group SIPP, which ensures that their employment contracts correctly reflect that all employees are contractually obligated to be joined into the workplace pension. This ensures the GSIPP investment options available to the workforce reflects the needs of their staff. They have built a more bespoke arrangement- that cannot be achieved by an insurance company GPP, or by big Master Trust arrangements -but can be achieved by a Group SIPP.
An added value solution!
Scenario 2
A law firm has considered the options available. Approximately80% of their staff are administration and support staff to the partners of the law firm. The remaining 20% are the partners; workers under the “definition of worker” required to be assessed. However, it might be that older partners have some element of protection and if they are auto-enrolled and don’t opt out of the QWP scheme immediately, and a contribution is paid into the scheme, then there is a potential for losing protection.
By setting up a contractual self certified scheme, the problem goes away. The law firm is auto-enrolling staff into the Master Trust default and they have set up a contractual self certified scheme for the partners using a specialist Discretionary Fund Manager.
Great opportunities to replace traditional GPPs with a GSIPP and build bespoke arrangements for corporate clients.