DIY-pension wrapped in gold

By THIS IS MONEY
Updated: 02:29 EST, 11 June 2007

Michael Williams wants to make sure his pension is solid - so he is investing one tenth of his retirement fund in gold bullion as he joins the growing number of savers taking advantage of flexible rules for Self-Invested Personal Pensions.

These allow Sipps to go beyond conventional funds and shares to explore more exotic areas, including commodities, land and some types of residential property.

Michael, 40, a self-employed consultant advising on complex insurance claims, wants more control over his pension. 'I had a collection of pensions from various jobs and none really seemed to be performing well,' he says. 'So I decided I should take charge and consolidate them into a Sipp.'

With the help of adviser Lee Hewitt of Hewitt & Harris Wealth Management Solutions in Nuneaton, Warwickshire, Michael transferred the pensions into a single Sipp. This freed him to start looking at more adventurous investment opportunities.

Michael says: 'I had been noticing the gold price rising and I know that in uncertain times gold has been seen as a bit of a safe haven. So earlier this year I decided to have some in my pension.'

He buys his gold through the www.bullionvault.com website. This is a direct trading system that lets customers buy and sell gold held round the world.

Buyers do not have to take whole bars but can deal in fractions of a kilogram. The gold itself is held in secure vaults in locations including London, Zurich and New York.

Michael says: 'I looked at several options to invest in gold but went for this one because the dealing and storage costs are not too high.'

Commission on each purchase ranges from 0.2% to 0.08% depending on the value of the trade. Clients also pay Bullionvault an annual storage fee of 0.12% of their holdings, which includes insurance.

His Sipp is administered by Pointon York Sipp Solutions, who as trustees are the legal owners of everything in their clients' pensions.

Michael, from Ilford, Essex, says: 'Once they had researched Bullionvault and made sure that everything was legally watertight, they were happy for me to go ahead.'

Gold is not the only unconventional investment that can be held in a Sipp. A relaxation in the tax rules last year has allowed investors to put their money into shares in unquoted companies, development land and residential property owned with others in a shared investment.

Richard Mattison, of Sipp administrators PAL Partnership, says: 'Investors have been gradually stretching their wings and we're now seeing all sorts of propositions.'

One client has used his Sipp to invest in a private company running a tourist railway in South Africa. Others have bought into fledgeling technology companies.

As unquoted firms, whose shares are not traded on a stock exchange, each investment must be independently valued. These are highly speculative ventures, with big risks for investors. Mattison says: 'We simply have to assess whether an investment is permitted under tax rules, not whether it is a good investment or not. The whole idea of a Sipp is that you make the investment decisions and take the risks.'

Test the waters before a Sipp

Sipps may be growing in popularity, but check they are right for you. Each Sipp needs an administrator - an organisation to ensure it is being run in line with the rules, to collect pension tax relief on behalf of the investor and to control withdrawals.

The more you ask the administrator to do, the more you pay. There may be a set-up fee, an annual running charge and costs each time you pay money in or out of the pension.

These fees are in addition to any charges on the investments held in the Sipp, such as the annual management fee on mutual funds.

The cheapest Sipps will offer a wide choice of investments, but not the full range. They are intended to be run by the saver themselves, typically operated online. Sipps in this category include Sippdeal, Alliance Trust Savings and Hargreaves Lansdown's Vantage Sipp.

Next step up the ladder are Sipps run hand-in-hand with a financial adviser. These have a wide range of investments and allow the adviser to be paid directly by the Sipp administrator. Sipps in this group include plans from Legal & General, Fidelity, Norwich Union, Standard Life and Jupiter.

Those who want to invest in more exotic ways, such as holding commercial property directly, will need a top of the range Sipp. Administrators in this market include PAL Partnership, Hornbuckle Mitchell and Pointon York Sipp Solutions.

Ben Willis, head of research at advisers Whitechurch Securities, in Bristol, says: 'Sipps are not for everyone. Many ordinary personal pensions offer savers a choice of fund managers and this may be a better-value option.'