Self-invested personal pensions (SIPPs) have undoubtedly been the major pensions success story of the last few years. However, there has been some debate about whether they are suitable for some of the people who have bought them. Unfortunately that discussion seems to have focused solely on how charges compare to those of stakeholder pensions. In fact, comparing SIPP to stakeholder is like comparing apples and pears. The most important aspect is value for money, and this is where advisers can add value for their clients.
When a SIPP is treated like a stakeholder, it behaves just like a stakeholder, and it costs roughly the same as a stakeholder. When people want more than they would get from a stakeholder, then it may cost more - that is the beauty of SIPPS; they are whatever people want them to be.
Pension saving is all about your clients having enough money put aside to see them through their twilight years as comfortably as possible and, with money purchase pensions, the pension income available in retirement is driven directly by the size of the pension pot built-up.
Regardless of an individual's attitude to risk, putting all their eggs in one basket is rarely a sensible investment strategy. A diversified, balanced investment portfolio is generally the key to successful long-term pension investment and reduces the risk of nasty surprises.
Of course, the right investment profile for any individual's pension pot very much depends on their needs and circumstances. As we all know, there is no universal solution. Even the right answer for an individual will almost certainly change over time as their circumstances alter, which is why it is so important to monitor investment performance and carry out regular reviews.
One thing we can say for sure, however, is that the more investment choice a pension plan offers, the more scope it gives advisers to construct investment strategies to meet their clients' needs. This is where SIPPs really come into their own. As well as a wide range of insured investment funds, SIPPs allow direct investment in assets such as mutual funds, equities and commercial property. Using Standard Life's SIPP portfolio as an example, only 36% of our SIPP assets are invested in Standard Life's own insured funds at December 2007. Two years previously around 57% were invested in SL insured funds. This shows advisers are helping clients diversify their pension assets. Given recent volatility in the world equity markets, another important investment option within SIPP is the ability to hold assets within the SIPP bank account - this is an option not available under contracts such as stakeholder. This can be a useful safe haven for some people when markets are rapidly shooting up and down.
All of these options give advisers real flexibility to tailor investment portfolios to match the needs of the most demanding of clients. Regular expert financial advice has a crucial role to play over the life of a pension plan as part of a successful pension investment strategy. The adviser should always be at the heart of the pension investment decisionmaking process - but the challenge is educating clients to understand the importance of investment performance and appreciate the true value that quality investment advice can add to their pension. Offer anyone 1% or 2% more investment return in exchange for an additional 0.1% charge and they will jump at it.
Value for money rather than just a focus on charges is the key. In measuring that, good service and excellent fund performance are equally, if not more important than low charges.
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