JUST imagine a new era of personal pension freedom that involves investing in fine wines, antiques and works of art.
Growing interest in what is known as the self-invested personal pension market has been quite phenomenal, and there are now over 100,000 in force from a standing start a mere decade ago.
With no sign that the trend is slowing down, such growth ha
s occurred because people want more control of their retirement savings.
New pension tax rules taking effect from next year will accelerate the prevalence of such self-invested pensions. This year’s Finance Act has made some minor changes, but they should have little impact on the plans already announced.
Soon individuals will be able to save in more than one pension at the same time - known as "full concurrency" - and invest their pension in anything they want. Under such new freedoms if you let your imagination run riot the possibilities are endless.
Soon you will be able to invest in your very own wine cellar, antiques and painting, along with that holiday home or buy-to-let.
However, it should be remembered that savers will still need to find an administrator prepared to allow such investments.
This is where the market will add its own reality check, as administrators want these assets to be tightly controlled through an agent.
But what sort of pension do you want? The simple answer might be: one that provides a decent level of income in retirement.
However, this simple view is often lost in the complex and jargon-strewn world of old age saving.
How many potential savers are turned off by talk of AVCs, personal pensions, contacted-in money purchase schemes and their like?
Thankfully, policy makers now recognise that successive governments had built in a layer-cake of tax rules that over-egged the pensions pudding.
Now, the emphasis is on minimalism, and the Inland Revenue has done an admirable job in paring down no less than eight sets of pension tax rules into just one.
So what have we got? For all practical purposes the ability to save whatever we want, whenever we want, into whatever retirement savings product we happen to choose.
True, there is a limit on personal contributions of 100 per cent of earnings - but how many people can afford to save all of their earnings? And yes, there is a limit of £1.5 million on the pension pot you can build up - but how many people will ever get within touching distance of that number?
Apart from keeping pensions simple, the Inland Revenue has also made saving for retirement attractive. For starters, there is a complete lifting of investment restrictions.
The ability to invest one’s savings in holiday homes, buy-to-lets, fine wines and art has already begun to stimulate the imagination of a public disillusioned with pensions.
Such investments may appear to be out of reach for most savers, but that need not be the case. By using a combination of existing paid-up pension funds and the higher contribution limits, a sizeable fund can be quickly built.
As mentioned, people are unlikely to invest all of their earnings every year but they might be able to do so as a one-off, if, for example, they received an inheritance.
Additionally, their pension fund can borrow half of the accumulated pot, further boosting the amount available to shop for desirable investments.
There is a perception that self-invested pensions are expensive. But for those with funds of £50,000 or more, they can actually prove cheaper than a charge-capped stakeholder pension.
So, as you toast that latest acquisition of antique furniture or pied-a-terre, the self-invested pension option soon on offer amounts to a pretty compelling package.
John Lawson is marketing technical manager at Standard Life
