Pensions demand attention

Published on Friday 5 September 2008 22:53

New research reveals a startling fact – one fifth of the UK workforce is failing to save a penny towards retirement. Conal Gregory examines the options

HALF the UK's workers are failing to save enough for their retirement, with more than one-third concerned about how they will cope when they give up work.

In research by Scottish Widows, one in five admitted they are not currently saving anything towards their retirement, 14 per cent are "seriously under-saving" and 17 per cent are not saving adequately.

For those who are not lucky enough to benefit from a final salary scheme, there are really three alternatives to gain pension tax relief.

A pension stakeholder represents a cost-effective choice for small pensions, says Kate Philip of Independent Women financial advisers. She recommends Norwich Union, Scottish Widows and Standard Life as providers.

A personal pension is for those able to afford 100-plus a month without the need for extra investment flexibility. A self-invested personal pension (SIPP) is appropriate for someone with a lump sum of 100,000 to invest or from 300 monthly.

From October, protected rights (funds built up by the national insurance rebate through contracting out) can be included. Older, higher earners who have been contracted out for a significant period may have up to 70,000 in protected rights pots.

SIPPs are popular but are really only appropriate if you want to invest in commercial property. Ian Lambie, director of Edinburgh Risk Management, recommends going for an independent trustee who specialises in this area, like Alltrust.

"If the fund is large enough – greater than 200,000 – and discretionary fund management is required, then use an independent trustee," says Lambie.

Many SIPP policyholders remain committed to good quality collectives, such as investment or unit trusts. A full-blown SIPP can be rather expensive if you are only investing in collectives. However, a good tip comes from Alex MacLean of Aspire Wealth Management. He says: "There is a case for choosing a SIPP provider which allows access to most authorised collectives worldwide without the additional costs you would be exposed to if other assets like commercial property were included."

MacLean likes Standard Life for its SIPP, as large-fund discounts are passed on to policyholders. Alternatively, for those who wish to invest in commercial property, he recommends Yorsipp which is a specialist "with an enviable track record and a very hands-on service commitment".

A third route is the SSAS (small self administered scheme) which is apt for those wishing to take full advantage of the higher levels of funding via the annual allowance.

"While a pensioner trustee is not required, I'd recommend a good independent administrator for the same reasons as with a SIPP," says Lambie.

A SSAS could be an ideal choice for a family unit or group of directors, allowing up to half the value of a fund to be lent. Taking the example of 1,000 gross annual premium over 10 years for a male retiring at 65 years, the top pension providers on a with-profits basis are AXA (16,939), Prudential (15,508), LV> (14,364), Wesleyan Assurance (13,569) and Norwich Union (13,378), according to Moneyfacts.

For unit-linked, taking the same investment and age, the providers are quite different: Zurich Assurance (12,902), Standard Life (12,626), Aegon Scottish Equitable (12,220), NFU Mutual (11,962) and Scottish Widows (11,821).

It's advisable to spread your investments, and pensions are no exception. Over five years, the top pension sector performers have been global emerging markets equity, commodity/energy, Asia Pacific excluding Japan, Europe excluding UK equities and Europe including the UK.

Conversely, if you are in an under-performing fund or sector, take advice from an independent financial adviser. The most disappointing sectors over five years have been global fixed interest, sterling corporate bond and North American equities.