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Pensions edge

To argue that more people should be using a self-invested personal pension as opposed to a stakeholder pension based on past performance alone rather skirts the issues involved in deciding which pension route to take.

The launch of stakeholder has been followed by the whole pension market simplifying and reducing the charges on other pension contracts. This has led to an upsurge in popularity for such vehicles as Sipps.

Whatever helps to increase individuals&#39 pension funding must be applauded but we cannot escape the fundamental differences that make it redundant to compare the fund performance of core stakeholder funds and the funds available via a Sipp.

Stakeholder and Sipps are at the opposite ends of the pension spectrum.

Stakeholder is designed to offer a plain vanilla, entry-level, low-cost, no-brainer pension for those who previously could not or would not contribute to funding for their retirement.

This very nature precludes offering access to funds that are more expensive to run and have higher volatility that may result in better performance.

Not wishing to denigrate anyone who has or will invest in a stakeholder, it simply offers an opportunity to benefit from being in a pension to those who do not care particularly about keep their eye on fund performance or who just want to be able to do a bit better than leaving the money in a bank account.

A Sipp, on the other hand, makes the investment world your oyster. You can hold individual shares, commercial property and the universe of unit trusts, to name a few.

I would hope that anyone investing via a Sipp would be able to generate better performance than someone who has a stakeholder. The whole point of investing in a Sipp is that the investor is looking for more specialist investments and probably a more aggressive investment strategy.

These options come at a cost and, though they have come down, they still do not rival stakeholder quite yet.

So to argue that to improve on core stakeholder fund performance we should take a Sipp but only use it to buy better-performing unit trusts is like buying a Ferrari but not driving it above 30mph.

This argument cannot be simply polarised as this would miss out on the massive steps that providers have made with personal pensions. Most providers&#39 pension contracts, being stakeholder-friendly, now offer a wealth of external fund links at very reasonable cost that does not necessarily take the annual charge over 1 per cent. If there are particular funds that are performing well, investors may still be able to access them via a personal pension without having to take on the extra charges and hassle that come with self-administration.

If at some point the client would benefit from the additional investment choice in a Sipp, then it is very simple to convert the personal pension across.

So, the fact that specialist unit trusts may have outperformed core stakeholder funds does not mean that more people should automatically be opting for a Sipp.

This chalk and cheese comparison just does not do either vehicle justice. The people they are likely to attract are very different.

To start building a portfolio using a Sipp is still a more arduous and expensive route to take if you are not going the whole hog to use all the benefits that Sipps have to offer.

Tim Sutcliffe is joint chief executive of Pi Financial

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