Even without the extreme volatility in the value of all asset classes that we have experienced over the past year most would agree that portfolio performance is substantially driven and influenced by it’s asset allocation and the specific investments representing each asset class.

The generous tax reliefs offered to registered pension schemes have helped to encourage the growth of personal pension business. However, since their first introduction in 1988 personal pensions have changed markedly, not only in line with the constantly changing pension’s legislation but also to meet the requirements of the regulators and changing client desires.

In its early years the personal pension often had a limited range of investment options and a charging structure that was heavily front end loaded. The need to provide benefits as least as good as a stakeholder scheme (the RU 64 rule) has meant, over time, there were major changes in charging structures. In addition, modern plans offer a much wider range of investment options, including external fund manager links as well as specialist funds. Most plans offer the full range of retirement benefit options, including income withdrawal and ASP, while virtually all can be used as a vehicle to contract out of the state second pension.

Over recent years, the self invested personal pension (SIPP) has become increasingly popular. It offers much greater investment flexibility than an insured personal pension and has also been boosted by its ability to include protected rights benefits with effect from October 2008. While there is no doubt that SIPPs will continue to grow in popularity for those who wish to take advantage of the wider investment opportunities, for many others the simpler personal pension plan will remain as the preferred choice.

The recent efforts of the Government to restrict the relief on pension contributions for high income individuals will undoubtedly affect the future growth of personal pensions. Although the rules as presently applicable, and proposed, seem unlikely to directly affect many individuals with personal pension arrangements, the changes are, however, likely to undermine the confidence in using pension arrangements as a means of saving for retirement. This is especially so if it is perceived that the current changes could be the prelude to further, more significant, cuts in pension tax relief. Such changes may only serve to encourage individuals to use an ISA to fund for their retirement needs.

As personal pensions have evolved let’s consider which types of clients may be attracted to them:

• Those who wish to take an active interest in their retirement planning, but without too many complications
• Those who wish to later be able to consolidate their accumulated pension capital into a SIPP if that proves advantageous in the future
• Those who would like to have the ability to consider a more diverse range of funds than those which will be available under a personal account or stakeholder
• Those who do not wish to be restricted to taking their pension income as an annuity

Where a client is interested in one or more of the above, then a personal pension might well fit the bill.

Having constantly changed throughout their existence personal pensions will need to do so again to address the impact of the new automatic enrolment rules and the personal accounts scheme with effect from October 2012. As yet full details are not available of the charging structure and investment options under the new personal accounts. However, whatever these may be personal pension plans will need to evolve still further if they are to continue to have a successful future.