For years, investors have been turned off retirement savings plans by poor performance, inflexibility and lack of investment choice. Product innovation and regulatory change have helped ensure that pension planning now looks more like other forms of saving, but some anomalies remain. So how can investors ensure they are the masters of their own retirement destiny?
First, it’s important to say the situation is probably as good as it’s ever been. ‘A’ Day amounted to a small revolution in pension planning, increasing contribution limits, allowing personal and corporate pensions to run alongside each other and boosting investment flexibility. Since then, the pensions industry has brought in more innovative products with a wider choice of underlying investments.
Broadening your horizons
The most obvious of these have been the expansion of the self-invested personal pension (SIPP) market and the introduction of qualifying recognised overseas pension schemes (QROPs) for UK citizens retiring abroad and globe-trotting executives. A trickle-down effect has forced personal pension and corporate defined contribution schemes to increase the investment options available.
Investors need to decide how much flexibility they really need, because it generally comes with higher costs. Although not suitable for all, QROPs come out top for flexibility. The exact range of options will vary depending on the jurisdiction under which the QROP falls, but may include UK residential property and offshore-domiciled alternative investments such as hedge funds.
For the majority of UK investors, however, fully functional SIPPs are their most flexible option for retirement savings. These cost more but allow for the inclusion of assets such as commercial property. Symon Hawken, head of the London wealth management division at Collins Stewart, uses this type of SIPP for all his clients. Clients’ money is usually managed on a discretionary basis, but this set-up allows for inclusion of existing business or investment assets.
Low-cost options
Groups like Hargreaves Lansdown and Fidelity have brought in low-cost SIPPs, which have helped democratise the SIPPs market. Rob Fisher, head of UK retail marketing at Fidelity, says, ‘Investors now have access to free pension wrappers with investment groups they know and top-name fund managers. Previously, pension fund choice tended to be pretty restricted, but now there is a breadth of options.’
These will generally offer sufficient flexibility to build a broad, geographically diversified portfolio of funds. Fisher says most of their SIPP investors use this flexibility, holding an average of 4.5 funds. Group SIPPs, run along similar lines but for employees of specific companies, are also coming into the mainstream.
However, Sheridan Admans, investment adviser at The Share Centre, says, ‘There are a lot of people who buy funds within a SIPP and review them once a year. It is not as easy to produce cost advantages w...
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