Twenty years of DIY pensions

Self-invested personal pensions (SIPPs) were launched two decades ago this week. We explain why these do-it-yourself pensions are really taking off.

Happy 20th birthday to SIPPs

Although Lawson's 1989 Budget was fairly unremarkable, it did include one long-lasting legacy: he launched Self-Invested Personal Pensions, or SIPPs. Hence, this Saturday marks the twentieth anniversary of the introduction of these self-managed pensions.

In the beginning, SIPPs were aimed at wealthy and sophisticated investors and, therefore, came with equally hefty management charges. Nine years after their launch, there were only 14,250 SIPPs in force, with a total value of £3 billion. Clearly, something needed to be done to make these retirement-savings plans more attractive to the wider public.

Thanks to improving market competition, SIPP charges started to come down. In addition, the universe of investments available to SIPP investors was widened to include assets such as commercial property. (In 2005, Gordon Brown announced that SIPP investors would be able to invest directly in domestic property, but this idea was later shelved, for fear of tax-dodging by buy-to-let investors and owners of second homes.)

The appeal of SIPPs was boosted by a number of factors and events, including:

• the decline of final-salary schemes which began in the late Nineties and continues today;
• the launch of low-cost SIPPs from 2000 onward;
• the overhaul and simplification of pensions on Pensions A-Day (6 April 2006); and
• allowing protected rights pensions into SIPPs from 1 October 2008.

Eventually, SIPPs started to catch on and, by September 2009, there were more than 500,000 plans in place, with a total value of over £30 billion.

Why SIPPs are so sexy

Personally, I'm a huge fan of SIPPs. I have one, as do my young son and daughter. Indeed, the only reason why my wife doesn't have a SIPP is that she is fortunate to be a member of one of the UK's most generous final-salary schemes. I chose to save for retirement using a SIPP for the following reasons:

• 1. Pension contributions attract tax relief, which means that you can reclaim the tax which you've already paid on earnings. For basic-rate (20%) taxpayers, this means that a contribution of £80 turns into £100, thanks to £20 chipped in by the taxman. For higher-rate (40%) earners, a further rebate of £20 can be reclaimed by contacting HM Revenue & Customs.

• 2. SIPPs are incredibly flexible and offer a wider investment choice than traditional personal pensions. This allows you to adopt an individual, pick 'n' mix approach of your choice, spreading your pot across a broad range of assets.

• 3. SIPPs can be used as an umbrella, allowing you to bring together various existing pension plans all under one roof. This makes it easier to keep an eye on your retirement savings, while reducing administration and paperwork.

• 4. You can transfer existing shareholdings (and pension plans) directly into a SIPP, which means that you can fund your pension each year without dipping into your cash reserves.

• 5. With a low-cost SIPP, initial and ongoing charges can be far lower than those levied by traditional personal pensions and even supposedly low-cost Stakeholder pensions.

• 6. When you come to retire, a SIPP is remarkably flexible, allowing you to stage your retirement by leaving your pot to grow and taking income only as and when you need it.

When I decided that a SIPP was definitely for me, I researched over eighty different plans in order to find which offered the best features at the lowest cost. The clear winner was the award-winning Vantage SIPP from Hargreaves Lansdown (HL), a leading provider of investment products and services.

I chose the HL Vantage SIPP because it has no set-up fees, low share-dealing commissions, and no or ultra-low annual management fees. As a bonus, Hargreaves Lansdown offers deep discounts via its fund supermarket. Indeed, there are no additional ongoing costs if you invest in certain funds.

In summary, if you're looking for freedom, flexibility and control when it comes to retirement planning, then you won't go far wrong with a SIPP, especially if you can manage it online.

More: Learn more about retirement and pensions | Make the most of your pension pot | Earn up to 12% on your pension pot