Managing your own retirement fund may sound tricky, but the numbers of people buying self-invested personal pensions (Sipps) has exploded over the past 12 months.

Before the Government’s radical reform of the pension system on April 6 last year — dubbed A-Day — there were thought to be about 50,000 Sipp holders in the UK. Estimates now put the figure anywhere between 150,000 and 250,000. One leading Sipp provider, A J Bell, says that contributions into its Sipps rose from £20 million in March last year to £131 million this year.

Tom McPhail, head of pensions research at Hargreaves Lansdown, the independent financial adviser (IFA), says: “The past year has been a huge growth period for the Sipp industry. We are rapidly getting to a point at which Sipps are going from being an additional feature to a must-have option when you sell a personal pension.”

But is a Sipp really a must-have? Or are too many savers being encouraged to purchase a product that is not appropriate for their needs?

Malcolm Cuthbert, managing director of financial planning at Killik & Co, another IFA, gives warning: “Sipps are not suitable for everyone and it is absolutely vital that people take expert advice. Some may be better off with a personal pension or a stakeholder plan.”

Mr Cuthbert says that savers should be wary of purchasing execution-only Sipps with no investment advice. “These are excellent for well-informed and experienced investors,” he says. “But they are definitely not a pensions panacea.”

Already, the Financial Services Authority (FSA), which began regulating Sipps on April 6 this year, has warned providers about problems with the marketing of these pension plans, saying that there was a lack of balance in some literature, where the possible risks and disadvantages of Sipps were not mentioned, and that some firms were encouraging transfers into Sipps but failing to mention that not all transfers are suitable.

But Andy Bell, managing director of A J Bell, says that the most vociferous critics of the Sipp boom have been the companies that stand to lose out — traditional pension providers. “All people are doing is voting with their feet,” he says. “They are deciding that expensive and poorly performing insurance company pensions are not for them. Most Sipp products stand up to far greater scrutiny on charges than personal pensions.”

Indeed, the boom in the Sipp market has taken place as their charges have plummeted. Before A-Day, Sipps were seen as expensive products suitable only for those with relatively large pension funds, but many providers are now offering low-cost Sipps. Overall Sipp charges have fallen by 13 per cent over the past year, according to a survey from Defaqto. Its report shows that the average set-up fee on an initial investment of £50,000 has fallen from £306 to £266. However, more than a quarter of Sipps now charge no set-up fees at all.

“The issue of cost is complex,” Mr McPhail says, pointing out that it is no longer the case that a stakeholder pension will necessarily work out cheaper than a Sipp. “A stakeholder pension plan can charge up to 1.5 per cent a year, but it is possible to get a Sipp with no set-up fee and no annual management charge, and to opt for a fund, such as the Schroder balanced managed fund, that charges only 0.8 per cent annually.”

Nor do you have to be a high-earner to open a Sipp, as was previously the case.

Hargreaves Lansdown, for example, allows monthly contributions from only £50 and lump-sum contributions of £1,000, although the company says that the average lump-sum investment of its clients is £15,000.

A large pension fund is no longer a prerequisite either. Mr Bell says: “Because you can now get Sipps with no fixed costs, it is nonsense to say that you need a pension fund of £250,000 to have one.”

However, he admits that the average size of his clients’ pension funds is between £70,000 and £80,000, which is more than double the national average.

Given falling charges and lower contribution limits, should we all be opting for Sipps? “If you want to give your money to someone, forget all about it and then come back 30 years later to collect your pension, then a Sipp is not for you,” says Mr McPhail.

He believes that stakeholder pensions — the simple, low-cost plans introduced by the Government in 2001 — are already on their way out and are likely to be replaced with personal accounts when these are introduced some time after 2012. In the meantime, however, stakeholder plans do have a role to play for some savers. “If you want complete simplicity in your pension arrangements, you will probably be more comfortable with a stakeholder,” he says.

Choosing the type of pension that is right for you is no longer about wealth or fund size. Mr Bell says: “It is more a state of mind. If you want to take control of your investments and understand the basics of investing, then you ought to choose a Sipp.”

However, he adds that savers must be prepared to spend more time on their pension planning than if they were opting for a stakeholder, or a personal pension plan. “Every three to six months you need to spend a bit of time doing some research, looking at your funds and rebalancing your portfolio,” Mr Bell says.

CASE STUDY: Taking control

Martin Walker has more pensions than most, but that didn’t stop him from adding to his collection last year when he discovered the greater choice offered by Sipps.

The solicitor from Telford, who already had a local government pension, a personal pension, a further personal pension taken out when he contracted out of Serps and membership of a group personal pension, says: “I am 47 now, so the more money I can put into a pension the better.

“I had been investing in Isas through Hargreaves Lansdown for a few years and they pointed out that I could get greater flexibility and a wider choice of funds if I invested through a Sipp.”

Though aware of the risks of running his own portfolio, Mr Walker has built up a relatively adventurous portfolio of funds, including Fidelity Special Situations, Neptune’s Russia fund and Jupiter’s China fund. He also holds Invesco Perpetual’s pension fund and the Hargreaves Lansdown multimanager special situations trust.

Mr Walker is happy to stick with funds — rather than picking the stocks himself — for the time being and says: “I have tended to shy away from shares. I hold a couple of stocks in banks, which I received when some building societies demutualised, but in general I tend to focus on unit trusts.”

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