Pressure on to stem the outflow of investors

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Pension companies have been adding more top-name fund managers to their personal pensions as they seek to slow the outflow of investors who are turning to the much wider investment freedoms of self invested personal pensions (Sipps).

With some estimates suggesting up to £30m a day is going into Sipps, the leading pension providers have inc-reased the number of external fund managers investors can access by about two thirds in a year, according to research conducted by Citywire, the online financial information site.

Since the rule changes in April, self-invested personal pensions have experienced a boom, with more and more investors using them to access a huge variety of funds, stocks and shares or even complicated investment vehicles such as contracts for difference.

“The pensions platform market has changed as Sipps have become more popular,” says Billy Mackay, head of marketing at Skandia Life. “Sipps expose clients to a wide range of investments. So we have tried to give access to as wide a range of topical and popular funds as possible.”

The biggest increase in external funds has come from Legal & General. Last year, according to the survey, L&G offered access to a total of 14 fund managers in their pension funds. This year the number is 251. “We’ve just been through a fund refresh to increase the number of funds available,” says Mike Connolly, spokesperson for Legal & General.

“When we launched our Sipp we gave customers the opportunity to enter into a personal pension with the chance to convert it into a Sipp in the future. Our expansion offers more choice and flexibility, which we know our customers want.”

Providing access to more external managers is good news for investors, according to John Sheffield, senior partner at AIS Pensions, financial advisers.

“The more funds you’ve got access to, the better,” he says. “If you look at all the major in-house funds they generally underperform the sector average more often than they outperform, and that’s been happening for many years.”

In-house funds, even at the top companies, rarely perform well across a full range of sectors. “If you use in-house funds alone then in effect you are either putting up with underperformance or creating an unbalanced portfolio,” says Sheffield. “If you choose a platform that has access to a variety of funds then instead of exposure to one or two UK equity funds you can have access to a couple of hundred.”

Despite the overriding trend for increasing manager access, some pension companies have maintained a relatively limited range. Friends Provident, Scottish Life, Prudential and Scottish Equit-able provide access to fewer than 30 managers within their pension funds.

Prudential even reduced the number of managers available in its funds from 26 to 10. But the life assurer says this was as a result of removing a handful of
Deutsche Bank funds when it was taken over by Aberdeen Asset Management. Separately, it has recently launched a “deferred” Sipp, which offers customers 800 funds, and which they can later convert to a full-blown Sipp if they want wider investment options.

But just as a wide fund choice is important so is the quality of the fund manager. Citywire rates managers according to their performance against their sector benchmark and their peers.

It calculates that the num-ber of Citywire-rated managers included in fund portfolios has increased in almost every organisation. Unsurprisingly, Skandia tops the list, with 132 Citywire-rated managers.

One of the main benefits of mainstream personal pensions is that, unlike Sipps, investors can often switch between funds free of charge. Sipps generally charge £25 to buy or sell funds, plus initial charges on the new funds of up to 2.5 per cent. If investors wish to move their money around these charges will eat into returns.

Setting up a Sipp typically involves an initial and ann-ual charge of about £250. In addition you will pay the standard annual management charge for investing in a fund such as a unit trust or open ended investment company (Oeic). On a personal pension, you can normally avoid such set-up fees, though the annual management charges for accessing external funds are likely to be higher at an average of about 2 per cent annually.

“Top fund managers are worthy of their hire,” says Sheffield. “And good performance can compensate for charges.”

But he warns that some investors have experienced poor administration within their Sipps, which has caused them losses. “In some cases investors were out of the market for a month when they tried to sell a fund and buy into another. Though platforms are more expensive on average, at least transactions are completed overnight.”

Nick Bamford, managing director at Informed Choice, an independent financial adviser, believes most pension providers will move towards offering as broad a range of investment funds as possible.

For a free report on Citywire’s survey, go to

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