A user's guide to self-invested pensions

Switching from a promising career as a barrister into commercial surveying may seem an unusual step to many, but Nigel Berney found he couldn't resist it. Together with one other partner and three employees they founded the Nigel Lawrence Partnership in Rickmansworth, Herts.

Despite dealing with the valuation and acquisition of petrol stations for oil companies, and advising banks on the valuation of motor trade properties, Mr Berney freely admits that pensions can be far more complicated than a pounds 1m property transaction.

Little did he realise that in the Nineties one of the best personal pensions on the market is also one of the most under-used. Typically, the doyens of the insurance industry have managed to jargonise an essentially simple concept - self-invested personal pensions, or Sipps.

For most pension investors, they should be as attractive a pension proposition as Indiana Jones' search for the Holy Grail. They offer the prospect of excitement, flexibility and real personal control over what is for most people a long-term investment project.

So how come Nigel got it right when so many people get it wrong? Perhaps most importantly, he got to grips with the idea that the insurance industry's jargon word "Sipps" was just that ... jargon.

Sipps are and always will be a personal pension with the option of added flexibility. Personal pensions are invested in a standard investment pool chosen by the fund manager. Sipps can also be left to the manager to manage, but they do not have to be. Nigel got to grips with the idea that despite the insurance company's references to self-investment he was the one who could decide not to self-invest.

If he never feels tempted to buy a building with his Sipp (which he can do), or to buy shares in Railtrack, Hanson, Vodafone, or any other listed on the stock market (which he can do), then his good hard-earned profits will be managed for him by the insurance company.

But if they don't make the grade or provide reasonable returns for his capital, his Sipp gives him the chance to appoint another fund manager, or to act as his own. Of course, in reality he would probably only do this in consultation with his independent financial adviser. He has also come to realise that the reality about self-invested personal pensions is simply choice and more of it.

For Nigel, the attractions do not stop there. He knows that by having a Sipp he can put lump sums of money into investment trust shares and not only have lower charges than most insurance companies demand, but also have impressive fund performance to boot, where names like Gartmore, Henderson Touche Remnant, M&G and Schroders bring a twinkle to his eye. Nor is he excluded from great unit trust managers such as Fidelity, Credit Suisse, Jupiter, Newton and a host of others.

All of a sudden, the idea of placing your money with just one insurance company looks boring, and choosing from a typical range of 10 funds, where two may be outstanding and eight may stand out for their poor performance suddenly becomes very unattractive.

In this utopian world Nigel has also recognised that he and his partner in the business may seriously want to consider using the money they have put into those boring old things called pensions for the purchase of their next offices, in the full knowledge that, for them at least, every pound invested attracts tax relief of 40 pence. When the property is purchased it will enable them to pay their pension schemes the rent that they might otherwise have paid to their bank in interest charges and borrowings. Who said you can't have your cake and eat it?

It shouldn't surprise anyone to learn that as the world wakes up to the vast array of choices and flexibility these schemes offer, investors only have one difficult choice to make - which one to buy? Personal circumstances will inevitably dictate the final choice, but in Nigel's case we were happy to recommend NPI because they didn't require him to invest any of his money in their insurance company funds if he didn't want to.

They have a very long and established history of pension investment and excellent administration. This is a particularly important feature when pension investments are made outside the insurance company's funds. Other companies that we recommend are National Mutual Life, Winterthur, Scottish Equitable and Prudential, which all make it easy for investors to take out a Sipp just as though it was a standard personal pension scheme. Increasingly, of course, unit trusts and investment trust companies are actively seeking to introduce and promote such products, as are stockbrokers.

While this might make it a little more difficult for investors to select the right company for their Sipp, they should not let it deter them from the principle of Sipps. Salesman are apt to put investors off such a scheme on the grounds that their pension funds are not big enough for self-investment. Technically this is correct in the short term, but for most people pension funds are accumulated over a lifetime of saving and so you would be well advised to have the right pension scheme in place from the outset.

Some Sipp providers will accept monthly contributions as small as pounds 25, others may want lump sums of pounds 20,000 or so. Some providers do charge substantial initial fees which make small investments uneconomic. But many companies have low set-up fees, which are used like supermarkets use the price of bread as loss leaders, looking to make up the costs in dealing commissions, transaction charges, and trustee services. Just remember to shop around and before you know it you could find yourself with the pension equivalent of a Lamborghini.

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