Warning over new DIY pension funds

INVESTORS are warned about the dangers of taking pensions into their own hands in the wake of poor performance by life insurance groups.

The problems surrounding with-profits schemes have contributed to a huge rise in the number of disenchanted investors turning to self-invested personal pensions (Sipps). Financial service industry estimates suggest the number switching from traditional packaged pension funds to Sipps has soared by 40% in the past year.

The figure is expected to grow from 50,000 today to more than 500,000 in five years. But Elizabeth Gibling, of Chase de Vere Investments, warned savers not to be tempted into thinking Sipps was a cheap DIY alternative to traditional funds. 'Some areas being invested in are extremely specialist and should be left to experts,' she said. 'The number of people piling in is a cause for concern. Sipps can be a very good option but people should take advice before investing.'

The Prudential yesterday became the latest group to cut payouts by up to 10% for 2m with-profits pension funds.

It follows similar cuts made recently by AMP Pearl and Friends Provident in their final bonus rates and pay outs. Aviva, formerly Norwich Union, warned last week that 75% of its 1.3m endowment policies risked missing their targets.

Ms Gibling said the Sipps problem lay with people who refused to listen to the experts. 'You always get clients who think they know best and they should be extremely wary. With any direct investment you have to tread very carefully. People who are tempted down that route often already buy and sell equities, but with specialist areas of investment such as bonds and gilts there are many pitfalls. Although they may not always recognise it, most people need someone to warn them about the potential hazards and who has the resources to complete trades quicker and more efficiently than an individual.'

Pam Wild, director of product marketing at Charles Schwab, a provider of Sipps, said: 'We're finding that a lot more investors are prepared to trade equities on their own account. We launched Sipps in February last year and we have seen steady growth since then, even in difficult market conditions. People feel more confident these days that they can handle their own affairs.'

Ms Wild said that many investors were putting lump-sum payments from existing pension funds into Sipps.