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May 5, 2006 12:57 pm

Stripped-down pension product leads field

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The market for self-invested personal pensions is booming, and not just among sophisticated investors looking to fund their retirement with niche overseas shares or commercial property.

A new breed of stripped-down Sipp has emerged for mainstream investors who want control of their pension investment without paying over the odds for the service.

These low-cost Sipps are basically pension wrappers around online share dealing accounts. They are being offered by providers such as Sippdeal, the online arm of AJ Bell, and Hargreaves Lansdown, as well as the fund platforms, Cofunds and Fundsnetwork and a handful of insurance companies and online stockbrokers.

With set-up fees as low as zero and competitive dealing costs, they provide a viable alternative to traditional low-cost pension investments such as stakeholder and basic personal pensions. Pension experts say that if you have a pension fund of between £50,000 and £100,000 it could be worth setting up a Sipp.

Andy Bell, managing director of AJ Bell, says the increased take-up of these “no-frills” products is the main driving factor behind the strong growth in the Sipp market.

The low-cost schemes are proving popular with individuals who already have company pension schemes and are looking to top up their savings, those who are fed up with the lacklustre returns being generated by some insurance companies or people building a nest-egg for their children.

“We have redesigned the product to make it available for the mass market. Specialist investments such as commercial property were the real expense behind the infrastructure of Sipps and 99 per cent of clients don’t need that,” says Bell.

The main issue to consider when choosing a Sipp is the price. Each scheme has its own charging structure but providers typically operate a tiered system so how much you pay determines the investment choice and level of service you can expect.

But even the cheapest Sipps open the doors to a much wider investment range than older personal pensions, and give you access to some of the best fund managers. With a Sipp you typically have access to the vast majority of unit and investment trusts and may also be able to pick individual shares, although dealing costs may be incurred.

Some of the simplest and cheapest Sipps are offered by fund platforms such as Cofunds and Fundsnetwork, which are accessible via financial advisers. Fundsnetwork, which has teamed up with Standard Life to offer its Sipp, is waiving its set-up and annual management fees – usually £100 and £200 respectively – if you invest at least £60,000. Its basic Sipp offers access to 950 funds and does not charge initial commission or transfer charges.

If you want the option of picking individual stocks and shares, you will typically have to pay a little more in the way of dealing costs, but these can be kept to a minimum.

Gill Cardy, an adviser at Professional Partnerships, says that many Sipp providers have wiped out their initial charges and have negotiated discounts so you are effectively getting institutional dealing rates.

You can take out a Sipp direct from Sippdeal, Alliance Trust or Hargreaves Lansdown, or a stockbroker such as Killik & Co or TD Waterhouse. These generally give you access to all quoted investments, so individual shares, exchange-traded funds, warrants and some fixed-interest products can all be held within the Sipp wrapper. The Alliance Trust Sipp, however, imposes restrictions on how often you can trade.

Cardy says: “Don’t take the Sipp at face value. Check that it offers what you envisage using it for and make sure you know all the associated costs.”

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