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The report found 21 per cent of Sipp providers are still refusing to allow investors to hold private equity in their Sipps, despite it being two years since the government relaxed the rules to allow alternative investments into Sipps on 6 April 2006.

The decision by a fifth of Sipp providers to block private equity investment comes despite 95 per cent of Sipp providers allowing their clients to hold hedge fund investments in their portfolios and 37 per cent allowing positions in prisons.

In addition, 53 per cent of Sipp provider respondents who do allow private equity said investing in unquoted companies has been a growth area.

However, of this 53 per cent, 47 per cent said they impose additional restrictions on unquoted company investments, such as a maximum proportion of the fund that can be invested in the asset class.

Claire Madden, director of Hotbed, said the decision by Sipp providers to stop investment in private equity was "mad" and undermined the whole concept of self-invested personal pensions.

Ms Madden argued many seasoned investors who welcomed the chance to invest for their retirement in a wider range of asset classes felt "very frustrated".

"If you want to use your Sipp to invest in private equity, why should you not be able to? The whole idea behind Sipps is the person investing takes the decision about where their money can be invested," said Ms Madden.

"I think it's mad providers should stop their clients investing in whatever they want to and is allowed under Sipp rules."

Ms Madden said the decision to shun private equity was mainly due to the cost of providing the asset class to Sipp investors.

The Hotbed research also found Sipp providers restrict borrowing with Sipps. Twenty-one per cent said they do not allow gearing, other than that secured against commercial property.

Hotbed permits individual investors to invest in private equity and commercial property as a syndicate, with minimum positions of £25,000.