For many wealthy investors, a basic or traditional self-invested personal pension from a mass-market provider can appear limiting and not right for their complex needs.

HNW investors have used Self-Invested Personal Pensions, a common UK structure, for years. Pensions have, at times, been a useful part of the wealth management toolbox in terms of their investment capabilities and tax advantages. (Those tax advantages, for example those linked to inheritance tax, are vulnerable, as shown by the changes in late October last year from the current UK government.) 

The author of this article, James Floyd, who is managing director at Alltrust, a firm providing trustee and pension services, argues that traditional SIPP models fail investors; he sets out the reasons why, and what the solutions might be. The editors are pleased to share this content, and invite readers to respond. The usual email jurisdictions apply. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

High net worth (HNW) investors often have complex needs and financial arrangements. They will often have a broad range of investments across private equity, direct commercial property, or bespoke portfolios managed by their family office.

For HNW investors, a basic or traditional Self-Invested Personal Pension (SIPP) from a mass-market provider can feel limiting and will not be right for their complex wealth needs.

“Exotic” investments
SIPPs revolutionised retirement saving by giving individuals more control, but not all SIPPs are created equal. 

For HNW investors a problem with ‘off the shelf’ SIPPs is the simplistic nature of the products available. Traditional SIPP providers tend to curb “exotic” investments in the name of simplicity and compliance. 

In fact, many mainstream SIPP providers won’t accommodate more entrepreneurial or niche assets. The very feature that once made SIPPs attractive – greater freedom – can be constrained by providers’ standard offerings. 

While SIPPs allow a wide range of investments, including equities, bonds, and property, they are still limited in terms of the types of assets that can be included. HNW investors may wish to hold alternative investments such as private equity, hedge funds, or bespoke real estate portfolios, which are typically not permitted within a traditional SIPP.

HNW clients might find that they cannot invest in that private venture fund or loan money to their own company through their pension, options which could be possible in alternative structures. These complexities often require a more flexible pension vehicle or investment structure.

Contribution limits and taxation
Traditional SIPPs are subject to annual contribution limits set by the UK government. As of the latest rules, the annual limit is £60,000 ($80,219) (though it can be higher depending on personal circumstances). HNW investors often wish to contribute far beyond these limits to grow their wealth faster.

While SIPPs provide tax relief on contributions, this relief is typically capped at the contribution limits, limiting the potential tax advantage for HNW investors who want to make larger contributions. Also, the UK imposes a Lifetime Allowance (LTA), which restricts the total amount an individual can accumulate in a pension without facing tax penalties. The current LTA is set at £1.073 million. 

For HNW individuals who have substantial wealth and wish to hold larger sums in a pension, the LTA becomes problematic. Exceeding this threshold could result in large tax charges.

Service and scale
Another failing of the traditional SIPP is the service model. 

HNW individuals often have multiple pension pots, perhaps accumulated from various employments or business exits, and they may wish to consolidate these into a single sophisticated structure. 

Traditional SIPPs sometimes struggle with large transfers or complex scheme administration, especially when compared with bespoke pension trusts or Small Self-Administered Schemes (SSAS) designed for company directors. 

There is also the matter of scale and fees – while SIPPs are cost-effective for many investors, ultra-wealthy clients might value a tailored service over flat low fees. They may require dedicated support for intricate tasks such as in-specie asset transfers (moving assets into the SIPP without selling) or handling illiquid assets. 

A one-size-fits-all SIPP platform rarely provides the white-glove, consultative service that high-end clients expect. The nuance and complexity of wealthy investors’ financial lives can be ill-served by a pension product built for the masses.

SIPPs are designed to provide retirement income, with a minimum age of 55 (rising to 57 in 2028) before funds can be accessed without incurring penalties. HNW investors may prefer more flexibility with their funds, opting for vehicles that allow them to access capital at different life stages, not just at retirement age.

What sophisticated investors really need
Many HNW investors are effectively looking for a hybrid between personal pensions and trust or institutional pension schemes. 

They need the control and flexibility to invest in a broad array of assets, similar to what an SSAS or Family Pension Trust can offer, alongside robust administration.

For instance, a wealthy investor might want to include private equity or venture capital in their retirement plan – indeed, surveys indicate that HNW individuals increasingly favour such alternative investments. A traditional SIPP might not accommodate these, whereas a more bespoke arrangement could. 

HNW investors should also think about succession and intergenerational planning in a bid to pass on pension wealth efficiently. Traditional SIPPs may lack features to allow multiple members or structured legacy planning. SIPPs. which are primarily designed for retirement planning, do not offer the same level of flexibility in terms of inheritance planning and estate management.

HNW investors need to move towards bespoke pension trusts and advanced SIPP solutions that offer greater flexibility. Innovations such as the Family Pension Trust and curated investment platform partnerships – not as sales gimmicks, but as a recognition that the uber-wealthy demand more from their pension vehicle. 

Conclusion
Mainstream SIPPs transformed pension investing for the better. SIPPs can work well for many investors.

However, when it comes to HNW investors, these vanilla SIPPs often fail to tick all the boxes, prompting a search for more sophisticated structures that can truly align with their wealth management strategies. 

Allstrust, which is based in the UK, is part of Guernsey-based UAP Group.