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| Whole of market investment approach |
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| Complete Flexibility |
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| Pensions - The Personal Pension Plan or the Self-Invested
Pension Route |
As long ago as 1986 the Personal Pension Plan was introduced largely in
its current format to allow investors who did not have membership of a company
sponsored pension scheme to save for retirement. Most of the original Personal
Pension Plans' only offered a with-profit solution or a unit linked managed
fund. This is very limiting in potential returns and is now viewed as rather
outdated.
The current generation of Personal Pension Plan are evolving into a Multifund
approach with the more progressive Insurance Companies offering their own funds
and a large range of external fund links which will encompass the 'best of
best' from all sectors of the market. The range of funds available will vary
from company to company.
Advice regarding the choice of funds and the investment sectors is
provided by an adviser to a client, and the insurance company will provide a
commission or fees solution for the payment of an adviser by agreement with the
client.
Generally a Personal Pension Plan offers a complete solution with packaged
administration and packaged investment solutions with the opportunity to have
variations on many themes. It is easy to obtain fund valuations and providing
that the administration levels are to standard then all aspects of the pension
plan are catered for 'under one roof'. One main advantage with an insured
Personal Pension Plan has been the easy access to property funds or specialist
funds which can limit risk.
Self-Invested Pension Plans (SIPP's) have been around for a long time
now, and they are simply a Personal Pension Plan which has the various elements
of Personal Pension Plan administration and advice broken down into separate
components.
The main advantage for a SIPP is that the pension has a 'whole of market'
approach to investment and a 'whole of allowable asset class' available
including commercial property. Investments are only limited by the rules laid
out in Inland Revenue (Her Majesty's Revenue and Customs) guidelines from
legislation, and can include property (commercial) and most classes of
investment fund including an OEIC, Unit Trusts, Investment Trusts as well as
shares traded by a stockbroker. They are attractive because of their
flexibility - you can virtually design your own pension and take responsibility
for your own investments.
However, whilst the charges may well be very low to set up and run a SIPP, the
investment advice is the key to making this a success. Many SIPP's can be set
up for relatively low costs, but investors need to budget for the specialist
advice which is required to guide their investment and to regularly review the
investments and make any changes that are required.
A SIPP is best used where a client wants either full investment freedom, or
wishes to have a whole of market investment approach and is prepared to use a
professional adviser to provide an investment solution. There are a number of
investment managers who also offer stock broking facilities that will tailor an
investment plan for a client.
By using a professional investment adviser a client is able to have both lower
costs and a specialist investment advice. Clearly there is a minimum fund value
which would make a SIPP worthwhile and while some providers will accept £50,000
as a bare minimum, the accepted minimum fund value for investment would be
£100,000, and some do say at least £250,000.
Why Use a SIPP? The main use of a SIPP is for investment freedom, but clearly
unless it is used then there is little point in having the facility. If you
have a SIPP then you should use all investment sectors.
A client will need a specialist with 'whole of market'knowledge to make the SIPP effective.
If an investment adviser or fund manager is employed then the main advantage that they have
is that they are able to make investment changes very quickly and easily.
It allows for corrections in portfolios due to market changes or if opportunities arise
that may suit an investor.
Generally a client who is restricted in investment time, say 5 years or less to
retirement, or who wishes to only use a limited fund range would be best served
with a Personal Pension Plan from an insurer. It will be easier and cheaper to
run. A client who would like a degree of investment sophistication and is happy
to pay for the advice required to regularly review and change investment funds,
or who would like a stock broking service included, would be far better served
with a Self-Invested Personal Pension Plan.
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