David Prosser: Concentrate on the best bit of Sipps
Saturday 10 December 2005
Gordon Brown's last-minute u-turn on plans to allow pension savers to invest in residential property and exotic assets has infuriated companies that have spent millions preparing for the reform. But while their anger is understandable, the changes to the pension rules that will still go ahead next April are far more valuable. Despite the hype, property investment would have only been possible for a handful of very well-off savers.
Forget all the nonsense about holiday homes abroad, or the investment value of classic cars. The best thing about April's reforms has always been that they will give more pension savers access to decent investment funds. This aspect of the reforms should finally sound the death knell for the hopelessly mediocre pension products punted out by some of Britain's biggest life insurers.
When personal pensions first came along, courtesy of the Conservative government in 1988, these insurers embarked on a feeding frenzy. Cashing in on a government advertising campaign stressing the advantages of taking personal control of your retirement planning rather than relying on your employer, the pensions industry launched products featuring a dizzying array of charges almost guaranteed to ruin your chances of decent returns.
This sorry state of affairs continued until regulators finally realised savers were being ripped off. The disclosure rules introduced in the late nineties - which forced pension providers to explain charges - and the launch of low-cost stakeholder pensions in 2001 has forced life insurers to clean up their act.
Yet one huge con remains. Billions of pounds of savers' pension contributions go straight into investment funds run by large life insurers. Year after year, these funds have produced sub-standard investment performance. And many charge substantially over the odds.
A £1,000 investment made five years ago in the average UK stock market-invested personal pension fund is today worth £919 - the money would have been worth £1,010 had it been invested directly in the stock market.
Most pension savers have no idea how badly their money is being invested. Pension fund performance statistics are only ever published in specialist publications, and while insurers must provide regular updates, savers have no way of knowing whether or not they are getting good value.
From April, however, almost all savers will have access to low-cost Sipps, as the pension simplification rules make it easier for providers to offer the plans. The big advantage of Sipps is that savers are not restricted to the funds run by the insurer administering the plans. Instead, you can opt for your contributions to go into mainstream unit and investment trusts.
There is nothing magical about these funds. But crucially, the unit and investment trust industries are far more transparent - performance statistics are now published in every national newspaper.
Also, competition in this industry is much fiercer. As a result, average performance is better - £1,000 invested in the typical unit trust five years ago is now worth £972, almost 6 per cent more than the average pension fund. Pick the right funds and you can really outperform. The best pension fund is at just £1,263 over five years, compared to the £1,836 generated by Rathbone UK Special Situations, the top unit trust.
Who knows what savers might have earned from property held in a pension,fine wine or art. The important thing is not to be put off by the chancellor's u-turn - from next April, most savers will have access to a genuinely better deal.
Newcastle winger is in Argentina having chemotherapy
Actors star in Woody Allen's 'Magic in the Moonlight'
Human faces unique 'because we don't recognise each other by smell'
Man's attempt to avoid being impounded heavily criticised
Returning to the stage after 20 years makes actress feel 'nauseous'
- 1 Scottish independence: Ireland since 1919 is a lesson for Scotland in what a Yes vote means
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 Why I haven't washed my hair in three years: It isn't greasy, it doesn't smell
- 4 Grandmas keep accidentally tagging themselves as Grandmaster Flash on Facebook
- 5 Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence referendum: A nation divided against itself
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...
Day In a Page
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony