Sarah Coles reviews the packaged pension schemes offered by investment houses linked to the investment company portfolios that they manage

Investment trusts could be as much a cornerstone of most people’s retirement as gardening and grandchildren. Their structure suits pension investment so well that many investment trust providers offer a pension scheme in which to put their trusts. But just because investment trusts are great for pensions, does it mean investment trust pensions are useful vehicles too?

There are currently nine specific investment trust-based pension schemes on the market, from five providers. Many position themselves at the low-cost, low-hassle end of the market, offering access to a limited number of the provider’s trusts, at very low cost. For example, this is the model adopted by F&C Asset Management and JPMorgan Asset Management.

F&C Management and Aberdeen provide similar types of pensions. Aberdeen also provides pension links for Dunedin and NVM Private Equity, while F&C offers a similar service for Graphite Capital Management.

Simple offerings

James Saunders Watson, head of sales and marketing for investment trusts at JPMorgan Asset Management, says: ‘It is a simple offering aimed at making the decision very straightforward, and it offers a relatively cheap solution for pension investors. Investors can choose from four investment trusts: JPMorgan Claverhouse, JPMorgan Overseas, JPMorgan Elect Managed Growth and JPMorgan Elect Managed Income.’

The simplicity, Saunders Watson says, appeals to direct investors in particular. He explains, ‘We used to offer a pension with more choice, but direct investors were overwhelmed by this. The reason we selected this limited choice was that these were the ones that were popular.’

Simplicity also allows for low cost. Saunders Watson says, ‘As with all these products, if it’s simple it shouldn’t be too expensive.’

Aberdeen and F&C have an upfront charge of £100, while JPMorgan has no initial charge. Annual charges are also relatively low; Aberdeen and F&C charge 0.25 per cent of the value of the portfolio every six months plus a plan administration fee of £50, while JPMorgan charges a fixed fee of £130. As for dealing charges, Aberdeen has no dealing charges at all beyond stamp duty, F&C charges just 0.2 per cent on sales and purchases, and JPMorgan charges 0.3 per cent.

These costs make them competitive with many stakeholder pensions. Saunders Watson says, ‘Our plan could sit comfortably alongside a stakeholder pension as it offers the simplicity of stakeholder but with investment trust choices.’ The only real difference from stakeholder with many of these schemes is that they don’t offer the statutory minimum investment of £20 a month, as this is simply not cost effective.

The SIPP option

Since the coming of ‘A-Day’ in April 2006, some investment trust companies have also begun to offer another option, the self-invested personal pension (SIPP). These are at the opposite end of the spectrum from stakeholder pensions as they offer investors the opportunity of investing in a huge range of different asset classes, from a variety of providers.

SIPPs are offered by Alliance Trust and the Scottish Investment Trust. Steve Latto, pensions development manager for Alliance Trust, says ‘We are now living in a world where people are used to “open architecture” products, and are comfortable using them. In addition, where people have built up substantial pension pots it doesn’t make sense to restrict them to a narrow range of investments, so we offer SIPPs.’

These are as accessible as traditional investment trust pensions, as the majority offer low minimum investments. All but one has a minimum of £50, and the SIT SIPP has no minimum at all. They also allow low one-off lump sum payments (typical minimum £1,000; £500 with Aberdeen’s scheme) which allow greater flexibility.

Investment trust SIPPs can also be low cost. Sherry-Ann Sweeting, marketing manager of SIT Savings, says ‘The SIT SIPP offers choice, flexibility and control. There is no set-up charge. The flat rate annual fee and low transaction charges make for a very competitive charging structure.’

The SIT SIPP offers a fixed annual management charge of £75 for portfolios valued at less than £50,000, and £150 for those over £50,000.

Alliance Trust actually has two offerings: the simple Select SIPP, which allows investment in any UK shares, investment trusts, unit trusts or open-ended investment companies; and the full SIPP, which offers a comprehensive range of investments, including listed equities, AIM stocks, unit trusts and OEICs, gilts and other bonds.

The Select SIPP has no annual charge when it is invested in the Alliance Trust. Otherwise there is a flat rate of £75.

Low-cost access

There are four factors that make investment trusts particularly suitable as retirement holdings. Firstly, Latto says, ‘Investment trusts tend to have lower charges than unit trusts or open-ended investment companies. This is particularly important when investing for the long term, because, over many years, those charges can add up.’
Secondly, the investment trust sector contains both broad, diversified generalist funds, which make good core holdings, and a variety of more specialised funds, which work as satellites around this core.

Thirdly, Saunders Watson points out that ‘Investment trusts can gear up and borrow to invest, so when the market rises they have extra exposure to the upside.’ This, of course, also means that investors also have increased exposure to the downside, so market falls can feel particularly painful. However, the theory is that pension investments are made over two or three decades at least, and over time the general trend should be upwards.

Finally, shares may be bought at a discount to net asset value, with the possibility that this discount may narrow over time.