Carte blanche for the confident investor

Pensions are like most things financial - the more you have, the better the deal you will get. If you want a flexible pension that puts you in total control then it is well worth considering a self-administered scheme. As long as you have plenty of money.

Self-administered pensions, and their close cousins self-invested personal pensions (Sipps), have many similarities with regular pensions organised by an insurance company. The difference is that you make all the investment decisions. You decide how much you want to put into your pension fund, how often, and when.

There are no penalties if you decide to stop making payments for a while and fewer restrictions on the size of the payments you can make.

An actuary reports on the state of your fund every three years to let you know whether you need to increase or reduce the size of the contribution you are making. Because the contributions are actually made by your company, these schemes are aimed at directors who own the business for which they work.

A self-administered pension also gives you total control over how your money is invested and a wider spread of investment possibilities.

You could put your money into company shares, property, insurance policies, gold bullion, art or classic cars. A yacht or holiday home in the Bahamas would probably be stretching it, but anything the Inland Revenue regards as an "orthodox investment" is allowed. It is even possible to use your pension fund to loan money to your company, buy the business premises, or invest in your own company's shares.

"The fundamental advantage of a self-administered pension is that it gives people total freedom," says Bob Woods of Mattioli Woods, the pension specialists. "You can handle all the investment decisions yourself or get a stockbroker to do it for you. You can have as little or as much involvement as you want."

A self-administered scheme also gives you more choices when you retire. It used to be the case that when you reached retirement age you could not touch your pension money unless you used it to buy an annuity, which pays out an amount each year.

Annuity rates can be highly unpredictable and in many cases it is better to defer the purchase. It is now possible to draw an income from a personal pension and put off buying an annuity until you are 75. It is much easier to take advantage of that facility with a self-administered scheme and it is not even available with a regular company scheme.

With a bit of financial wizardry it is also possible to make sure that when you die, any money left in your pension fund goes to your family and does not get snaffled up by an insurance company. Self-administered pension schemes are likely to become even more beneficial in future, according to David Harrison of Kidsons Impey, the accountants.

"It is likely that the use of pension funds is going to extend beyond the mere provision of pensions. It might be that you could earmark part of your fund to pay for healthcare. A self-administered scheme would be the best to take advantage of that," he says.

It can be expensive to set up a self-administered scheme, but once it is running, the lower maintenance charges make it a lot cheaper.

This means that over time your pension fund gets a lot bigger. One study showed that a self-administered pension fund could build up to 20 per cent more than a regular company scheme, just because the charges are lower.

A typical scheme would cost about pounds 1,800 to set up, according to Mr Harrison. An accountant or financial adviser would also charge up to pounds 1,000 in fees, depending on how complicated your circumstances.

Once the scheme is running, you should expect to pay around pounds 750 a year in administration charges and pounds 300 for an actuarial report every three years. There will be other charges if you want someone else to handle the investments for you. To justify the costs you need to be able to make sizeable contributions.

"If you are in your 30s and have a lifetime of working in your company ahead of you, and anticipate contributions of at least pounds 5,000 a year into a pension scheme then the self-administered route could well be for you," Mr Harrison says.

If you cannot afford that sort of contribution level it might still be worth starting a self-administered scheme now.

"If you know that your pension fund will have reached at least pounds 0.5m when you retire, it would be cheaper to start with a self-administered scheme rather than switch to one at a later date," Mr Harrison says.

"We have one or two clients who have started at pounds 400 to pounds 500 a month but that is because they are looking to build that up over a period of time."