SIPPs are a symbol of change

Self-invested personal pensions (SIPPs) may have been last week's topic, but pensions are a subject so diverse - and so emotional - that commenting only on one aspect is not enough.

Self-invested personal pensions (SIPPs) may have been last week's topic, but pensions are a subject so diverse - and so emotional - that commenting only on one aspect is not enough.

Consider how pensions have changed. Once, the State Retirement Benefit was considered sufficient to look after the needs of most. But, cynically, retirement at 65 was established because life expectancy for those who reached that age in the years after the Second World War was only ten months. As longevity improved, the Government's problems grew. Withdrawal from providing an adequate income in retirement became necessary. Companies, too, were also concerned.

Most company pension schemes used to be based on final salary. Known as Defined Benefit Schemes, they usually did not prove too much of a problem. Markets were buoyant over the last quarter century and the approach taken by our pension fund managers resulted in fund values rising significantly. Also, in the past early leavers from a scheme were penalised, so those that stayed benefited from loyalty - or inertia.

But as well as living longer, a Government requirement to match investment assets with pension liabilities presented problems. The Minimum Funding Requirement had its origins in the Maxwell pension scandal and compelled some pension schemes to sell equities, reinvesting into gilts. And then a more mobile labour market led to stricter - and fairer - rules on transfer values. Suddenly the pressures on occupational schemes were increasing but companies also had a possible opt out. Defined Benefit Schemes could be replaced by Defined Contribution Schemes.

Defined contribution means the money invested will be used to provide you with a pension on retirement that relates to the value of your share of the fund. In other words, a Defined contribution scheme is like a personal pension, except that the employer is responsible. What then is the difference between this type of scheme and a personal pension? Aside from who makes the contributions, very little.

Of course, there are still plenty of people in final salary schemes, while even those in defined contribution schemes may be better off staying put. Still, it does no harm to consider the concept of holding your pension pot within a smaller, more flexible personalised fund - like SIPPs.

Anyone with less than £100,000 of pension assets is unlikely to be suitable for the SIPP route, although younger pension contributors, able to put a substantial sum away each year, could find this a preferable course of action. Pension funds received through divorce could be appropriate for SIPPs. And there are the "silver surfers", those with the time and the interest to monitor their investments. They may well wish to play a part in managing their pension.

SIPPs seem certain to increase in popularity. Are they complicated? Not really. They are merely a symbol of change in this fast moving world of ours.

Brian Tora is Chairman of the Greig Middleton Investment Strategy Committee