A-Day for investment trusts?

Tuesday, 27 September 2005 12:00

A-Day, when pension rules are simplified, could be ideally suited to bring investment trusts into pension planning, new research finds.

On April 6th next year - less than six months away - the rules for the pension industry change, and while most of the current focus is on the fact that new rules will allow investment in residential property, investment trusts are also set to gain.

Under the new legislation people will be able to hold assets including residential property in their Self Invested Personal Pensions (Sipps); while anyone earning more than £30,000 who has a company pension will be able to take out a Sipp in addition to any other pension they have.

"Investment trusts can be an ideal cornerstone for Sipps," said Daniel Godfrey, Association of Investment Trust Companies (AITC) director general.

"The closed-ended structure means managers can take a long-term view of the market without the threat of having to sell good stock to meet redemptions, whilst the flexibility to invest in a range of assets such as hedge funds and private equity is another feature that has helped the sector post some strong returns over the longer term."

However, research from AITC suggests 71 per cent of consumers have not heard about the changes, while just 12 per cent of those who have heard about plan to make any changes to their pension portfolios.

But as A-Day approaches, more and more media attention is being directed at it - and this combined with the ongoing pensions debate could see demand soar.

Alan Harden, chief executive of Alliance Trusts (ATS), said: "Demand for Sipps is already growing but we expect the market really to take off from next April.

"Given there are only around 200,000 Sipps today, in contrast with more than nine million people who have occupational pensions, the opportunity for growth is clear."

Chris Fletcher, of Baillie Gifford & Co, added: "Pensions are long term savings vehicles and you should choose good long term savings products - low cost, well diversified assets which aim for long term growth.

"And that's what global investment trusts are, so they are in that sense the perfect fit for pensions. Low costs are important. A difference of charges of one per cent over 25 years on a portfolio growing at seven per cent a year could add 100 per cent of your initial investment to your fund.

"But it doesn't stop there - with a good flexible Sipp you can diversify further into specialist trusts, particular equities or bond funds and cash as you wish.

"Asset allocation is important, and you need to be able to invest sensibly as you save - generally in readily marketable assets. There is much talk now about property - but it is illiquid and complicated to buy. Few of us can afford to buy a single large asset like a house in a well diversified pension plan - and many people already have a large property investment in the house they live in."

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