Warning re Stakeholders/Personal Pension vs SIPPS

ReportInvestor

Bit by bit the IFA Supertanker is moving to accepting SIPPs.

The current issue of Investment Life & Pensions has as its lead story:

Making a slash: SIPPs

Martin Tilney thinks SIPPs "will not be appropriate for more than 10%" of pension savers. The article puts it in these terms: "Although SIPP products often have a more expensive charging structure then conventional schemes, to make them more effective they should only be taken on by investors who plan to fully utilise the investment options open to them."

But Viv Belcher "has no doubt that SIPPs are here to stay. She comments: "I feel very strongly that SIPPs are about to become very mainstream.......The reality is that most professional people should have a SIPP. The competition SIPPs pose to the rest of the pensions market is undoubtedly becoming robust...."

Basically investors, fed up with insurers, have been voting with their feet.

However IFAs should not be glum, since the article's final sentence is:

"If SIPPs do indeed take off, as many expect, the new opportunities facing IFAs will be vast."

dunstonh

But dh, the whole point of SIPPs, and the reason why some people prefer them, is that they are not comparable to financial industry products. In any case the only meaningful way to judge investment performance is by results, i.e. the size of return and in kittie's case it seems pretty spectacular ( well done, kittie! ). Nor is this an isolated case; the people I know who have moved their pensions into SIPPs and chosen their own shares are very happy with their decision.

Kittie has not made us aware of the different asset classes she is investing in. She could have been in low risk corporate bonds, property, gilts etc which are less volatile but have less potential for long term growth. Now, she could be in higher risk funds or shares. You cannot compare the two.

The Daily Mail printed a chart some years ago comparing corporate bond funds with tech funds and "encouraged" people to switch out of corporate bonds into tech funds. When the tech crash happened, the corporate bonds continued to perform at the slow and steady rate without loss whilst those in tech funds need around 900% growth just to get back to where they started.

The product wrapper doesnt have any investment performance. Its what you invest in that does.

If you invest in schroder mid 250 fund (the top performing UK all companies fund of recent years), then it is cheaper with a stakeholder pension than it is in a SIPP. Its the same fund though.

SIPPs are quite desirable for many people and I am happy to do SIPPs when they are appropriate. However, if you think that the SIPP is the reason that Kittie has made money and not the assets within them, then you really shouldnt have a SIPP because you dont understand how they work (I know you do CC, thats not directed at you).

Reportinvestor, the information there is aimed at professionals who do tend to have larger funds and are more suited to SIPPS or the forthcoming hybrid SIPPs. Any company promoting SIPPS is going to be pro SIPP. I prefer to recommend the product that is most appropriate for the individual and not get caught up in the hype surrounding the promotion of products by those with a bias.

ReportInvestor

dunstonh wrote:

Reportinvestor, the information there is aimed at professionals who do tend to have larger funds and are more suited to SIPPS

No it's not. Investment Life & Pensions is aimed at IFAs like you.

[Deleted User]

our IFA was happy to do a sipp for us too but I was even happier to `do` a sipp myself. I don`t charge

I have deleted the part about a typical cautious sipp portfolio. As requested by pal

Being able to choose sipp components, within a sipp wrapper, is one of the biggest advantages when considering setting up a sipp. Equity, funds, cash whatever. The choice is very much greater in a sipp wrapper than in a pp

Another very big advantage of the sipp diy route is a lack of haemorrhage of cash to anyone who sets up a sipp, or personal pension, for you in a role as a third party agent

Yet another sipp advantage is security of cash as no third party is involved in making decisions. I believe that the fsa compensation limit is only £31,000

Pal

Kittie

Your posts on this thread are off-topic, in that they do not discuss the advantages or disadvantages of SIPPS vs Personal Pensions. If you want to post details of your investments then please do so on a seperate thread. Future posts discussing your choice of investments to this thread will be deleted.

Please note that I am not commenting at all on your choice of investments or savings vehicle, but your (IMHO) misguided focus on short term performance compared to a fund that you do not hold is not what this thread is about.

Chrismaths

dunstonh wrote:

Kittie has not made us aware of the different asset classes she is investing in. She could have been in low risk corporate bonds, property, gilts etc which are less volatile but have less potential for long term growth. Now, she could be in higher risk funds or shares. You cannot compare the two.

I agree with dunstonh's sentiments about comparing like with like, but I have to pick up on a common IFA (and general public) misconception here.

I wouldn't say corporate bonds or gilts are low risk. They may have low volatility but they are not low risk. In BGI's annual Equity/gilt study, they are forecasting an annualised real return of -2.3% over the next decade. In other words, £10,000 invested in gilts today could be expected to be worth less than £8,000 in today's money in 10 years! There are many types of risk, and volatility is a poor measure of most of them. The risk people are most interested in is the probability of losing money over a given time period. Gilts are more or less guaranteed to lose you money.

cheerfulcat

I wouldn't say corporate bonds or gilts are low risk. They may have low volatility but they are not low risk.

I have given up trying to get that message across here but thanks for saying that.

dunstonh

A potential loss of 2.3% is lower risk than a potential loss of 20-30% on higher risk.

Corporate bond funds are not risk free but they are lower risk than stockmarket funds. Fluctuations in the short term do not alter the placement on the risk scale.

EdInvestor

There are many types of risk, and volatility is a poor measure of most of them.

Entirely agree. Getting used to volatility ( the fact that prices of shares etc wobble up and down) is one of the key secrets of successful investing IMHO.

IME it's a bit like learning to ride a bike - or sail a boat.

Chrismaths

Risk is not a static concept. A gilt yielding 8% to redemption in 10 years would be less risky than a gilt yielding 4%. Risk is valuation driven.

A potential loss of 2.3% is lower risk than a potential loss of 20-30% on higher risk.

Not potential. EXPECTED. The central case expects long term losses on gilts. So why invest in them? People seem to have forgotten that we take on risk to get a BETTER return than we can on cash - this march towards diversification at any cost is simply wrongheaded. And the central case for equities is 3% real - not wonderful, I'm no equity bull, I'm just a huge gilt/fixed interest bear. And that's market returns, not what can be achieved through decent management. You said 20-30% loss on equities annualised over 10 years. So my £10,000 would be worth £282 to £1073. So you are saying there is a significant risk of the FTSE going from 6000 to about 170. If you meant a 20-30% loss over 10 years - that's an annualised return of ..... -2.3%!!!! Sounds low risk to me

Most people think that the spectrum of risk goes:

Cash (risk-free), gilts, inv grade corp bonds, property/hy bonds, equities, options, futures. (or something similar). However, risk is multidimentional as well as dynamic (I'm on fire now!), as the following recipe shows:

Take 1000 shares in HoleInTheGround PLC (very risky)
Take 1000 short CFDs in HITG PLC (extremely risky)

Add them together (no risk bar counterparty).

The FSA seem intent on telling everyone that any fund that uses derivatives is very risky and should be used upon pain of death. However by using derivatives (usually options) it is possible to construct portfolios of shares that exhibit the volatility characteristics of bonds, whilst being independent of bonds. Risk is perhaps the most overused and least understood words in the financial industry.