Why do so few people seem to have come across self-invested personal pensions?

I have had a number of clients in to see me over the last few months, who have had to sort out their pension arrangements. I find it quite surprising that so few people have come across self-invested personal pensions (or SIPPs).

These are like normal personal pensions, but the investments may be chosen on an individual basis rather than relying on the funds of any one insurance company.

This allows the financial adviser to pick investment managers who have consistently outperformed the market in each specific area of the world. They also allow the option of investing in property that one may then use to run business activities or rent out.

The first client had made a medical discovery and wanted to exploit this new idea. He wanted to buy premises in the Chatham area of Kent, but was short of capital. He decided to transfer out of his NHS pension scheme and invest part of the funds in a commercial property from which he could run his business.

The remaining two-thirds were invested in a with-profit fund, which smooths investment returns in good times and bad, in order to provide a safe return for the future.

Because rents in the Chatham area vary considerably, he was able to charge himself a low rent at the start with the prospect of a substantial increase after a few years. Because the property price was low, the initial return for his pension, the rent he paid, was 18 per cent.

The next client, Fiona, was in a similar position, but it was her husband, Henry, who ran his business from expensive rented accommodation and wished to reduce his rent.

We made use of Fiona's pension fund to purchase two industrial units for pounds 40,000. Henry paid rent of pounds 4, 000 for one unit and managed to let the other for a similar sum. This gave Fiona a really good return for her pension fund, excluding any potential capital growth, and at the same time reduced the rental cost to Henry's business by pounds 4,000.

The next client, David, was able to retire at 50, but did not require the income, so he decided to defer payment and in order to do so made a transfer of his pension into a SIPP.

In this sort of situation I work closely with an actuary, Ian Walker, who renegotiated the value of the occupational scheme's transfer from just over pounds l00,000 to almost pounds 200,000. David wanted stock market exposure but required a low risk. I recommended we should make use of guaranteed stock market bonds.

These are pension fund investments with a three-month option to discontinue. The level of risk may be chosen as either 0, 1 or 2 per cent. The table (left) illustrates the potential gains for each level of risk in four different stock markets for the first three months of this year.

On a 1 per cent risk, say, if the Nikkei falls by 10 per cent during the quarter, the loss is restricted to 99 per cent of a pounds 10,000 investment, so you only lose pounds l00. If the market closed up 10 per cent, the value of the bond goes up 20 per cent to pounds 12,000.

To round off the portfolio, we made use of the best performing UK smaller companies unit trusts, together with a Pacific Rim unit trust.

In addition, we used an emerging market fund which invests in other single- country investment trusts, especially when they are at a discount to net asset value. This is where the value of the underlying assets within the fund is greater than the value of the investment trust shares.

The fourth client, Norman, is a management consultant, aged 51, whose income is very variable. He had a large paid-up pension with a previous employer, which had been untouched for some six years. He wanted to pay off his mortgage and to be able to draw a variable income from his annuity.

After a lot of argument with the insurer who ran his fund, we managed to transfer out of the occupational scheme to a personal pension on a self-invest basis, with an income withdrawal facility.

He took the maximum tax-free cash of pounds 80,000, which he used to pay off his mortgage. The remaining funds of approximately pounds 300,000 were invested in a mixture of funds.

This allowed Norman to decide whether to draw an annual pension income of between pounds 9,000 and pounds 27,000. When his consultancy income was good he could draw a small pension and when his consultancy income was low he could draw a larger pension.

Michael Royde can be contacted on 0171 792 3700