David Prosser: Concentrate on the best bit of Sipps

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.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent