It’s easy enough for me to throw stones at SIPPs, I don’t invest in them, I don’t advise on them and I don’t run one.

In the early days of SIPPs , two good friends, John Moret and John Quarrell took the lead. They saw an opportunity to allow sophisticated investors to break the shackles imposed by life companies on personal pensions and to use pension saving to create and preserve wealth. This precursed pension freedoms, it is an interesting question as to whether the tax reforms of 2015 which released people from the need to buy annuities, could have happened without the work of the two Johns, Robin Ellison and a handful of pioneers back in the early 1990s.

Since then, SIPPs have become a multi-billion pound money spinner, propelling St James Place and Hargreaves Lansdown into the FTSE 100 and allowing  platforms such as  Nucleus and AJ Bell to float at half a billion a time. SIPPs are the tax-wrapper that powers the UK wealth management industry.

Not everything worked out well, John Quarrell’s original vision was so tainted that in the past few months Liberty SIPP has become a millstone around the advisory communities neck. Many of today’s SIPPs have been similarly abused by scammers – purporting to give advice, but selling snake-oil. The SIPP has mutated from being a way to cut out the middleman, to being the middleman’s club. Far from bringing down the cost of investment, the complex structures of some of today’s SIPP seem to reward everyone but the investor.

“Pensions” – but not as we know them

If I talk to my wealthy friends, the SIPP is a product that they use but do not understand. The layers of platforms, providers, administrators, operators, DFMs and custodians pass them by. They buy brands – principally St James Place and Hargreaves Lansdown, as the wealthy of previous generations bought into stockbrokers such as Cazenove. The clubby atmosphere of being part of an investment community is carefully created to engender in SIPP investors a sense of their being special, a breed apart from the ordinary investor.

It is a neat trick, convincing people that because they have money, they are wealthy and deserve the services of a wealth manager. Our vanity makes us vulnerable and our gullibility increases the more it is assumed we understand. Who would expose themselves to ridicule by telling an investment expert they didn’t understand?

The disconnect between wealth management in a SIPP and the provision of a wage for life (aka a pension) is completed by the presumption that if you are wealthy, you really don’t need a pension at all. Increasingly pensions are being sold to those who think they are wealthy as a means to preserve wealth from one generation to another.

Can I have my money back?

Like Oliver , asking for more grewell, the SIPP investor cowers before his wealth manager. “Can I have some more?” has become “Can I spend my fund?” and when it comes to that, SIPPs are found wanting. The Lang Cat’s survey of SIPP drawdown facilities shows how much less developed the decumulation than the accumulation functionality.

SIPPs  consider “claims’ an inconvenient administrative burden rather than the core service. The investor is not expected to ask for the money back,

A better future for SIPPs?

I think the disconnect between wealth and pensions is at the heart of the problem. If it costs 30 to 40 times the pension for an occupational scheme then even the 4% rule (where the implied cost of the pension is 25 times) looks toppy. 4% of £250,000 – which is often considered “wealth” equates to a toppy pension of £10,000pa.

“Pensions wealth” starts at perhaps £750,000 which means that unless you have a defined benefit that extends some way beyond the state pension, most of us cannot look at their SIPP as their long-term replacement income.

The new breed of SIPPs – such as Pension Bee and E-vestor are disintermediating , reducing their costs and focussing on customer retirement needs, rather than abstract notions such as wealth creation and preservation. These SIPPs are more likely to fulfill John Moret and Quarell’s original vision of a lower cost alternative to the insured personal pension.