Now personal pensions and free-standing additional voluntary contribution (FSAVC) schemes are offered by a number of managers including AIB Govett, Edinburgh Fund Managers, Fleming Investment Trust Management, Foreign & Colonial and Ivory & Sime. Alliance offers a personal pension for the self-employed. All these work just like any other personal pension plan and attract the same tax treatment. The difference is that premiums will be placed in their investment trusts.
Usually you will have a choice of several trusts and you can switch between funds at little or no cost. The big advantage of an investment trust pension over a traditional life company is performance. Liz Walkington, of Ivory & Sime, points to figures produced by Reuters Hindsight to bear this out. In the 15 years to the end of March 1998 the average investment trust grew by 981 per cent while the average managed pension fund grew by 589 per cent. The average life fund, by the way, grew by just 356 per cent. All figures are before charges and do not include any life cover.
"As more people see their pension as an investment product, so they will see the benefits of investment trust pensions," says Ian Taylor of AIB Govett. "Many are now realising that they are saving for retirement by investing in the stock market. This being so, it makes sense to look at what all investment trust houses are offering in the way of pension schemes."
As well offering better performance and more choice, Mr Taylor argues that charges are often much lower with investment trust companies as they do not have sales forces to pay.
So far, interest in investment trust pensions has been limited, Mr Taylor admits, but he remains optimistic. "The market is growing slower than we hoped but I think that has a lot to do with the pension mis-selling scandal," he says.
Another criticism that has been put forward is that investment trust funds are often very specialist and higher up the risk spectrum than a life company's with-profits fund. But Ms Walkington argues that the long- term effects of inflation can make a with-profits fund a riskier investment: this sort of fund has less exposure to equities and invests heavily in cash and fixed-interest securities.Reuse content