Take the direct route for your pension plans

Buying a pension direct has made things easier, but be sure you know what you're getting.

NOT SO long ago, buying a personal pension seemed so complicated that we needed an adviser to get it right. But since the mid-Nineties, telephone-based providers have entered the fray.

Part of the argument for going direct is that by cutting out fat commissions payable to middlemen you will buy a cheaper pension, where more of your monthly premiums go straight into your pension pot.

The changing structures built into commission-paying plans sold by company representatives and independent financial advisers (IFAs) mean that a large part of the premiums payable in the first few years go in charges.

Many of these plans also carry "allocation rates" of less than 100 per cent, another way of saying that only a part of your money gets invested into the pension fund. Watch out also for "bid-offer spreads" - the percentage difference in the price you pay for fund units and their value when you cash the plan in.

Insurance companies like Legal & General or Scottish Widows have both preserved this changing structure with their direct pension plans. For instance, Legal & General has a 5 per cent bid-offer spread on units in its direct pension. The company also offers an allocation rate of 102.2 per cent on contributions. Deduct 5 per cent from 102.2 per cent, and you find that only 97.2 per cent of your premiums are in fact being invested.

Virgin Direct and Eagle Star have no bid-offer spread. But they do charge pounds 2 a month for contributions into their schemes, which penalises those making smaller payments. Virgin also levies higher-than-average management charges (for telephone providers) of 1 per cent.

Marks & Spencer has no bid-offer spread, but lower allocation rates - down to 95 per cent of premiums - which makes its plan more expensive than, say, Legal & General's. It also charges pounds 1.75 a month for contributions.

Some plans have very low minimum premiums - just pounds 30 a month in the case of Scottish Widows and Marks & Spencer. Look out for contract options such as "waiver of premiums", which insures you against being unable to pay premiums due to ill-health.

Despite these many differences and charges, even the highest-charging direct plans cost less then the average charges payable on commission- paying plans.

Fund choice may be limited at times. Virgin's main pension is a tracker fund that matches the performance of the FT-SE All-Share index. Flemings offers a range of 18 actively managed investment trusts available through its telephone plan. Meanwhile Tesco has available a stable of five funds, which includes both UK and International growth funds.

Despite the growing market for telephone pensions sales, Tom King, a senior manager at Standard Life, thinks that much of the claims about the advantages of buying a pension over the phone are just marketing hype. "We are committed to selling our plans through independent financial advisers and are happy to pay them commission," says Mr King. "The reason for that is simple; savers need advice about pension planning."

Some of the direct providers, including Virgin and Fleming's, will offer their clients specific advice, but only by telephone. Eagle Star offers its customers the option of seeing one of its salespeople face to face, if they so wish.

Ms Willis warns: "Don't confuse this with the genuinely comprehensive advice you can get from an IFA. These plans are a low-cost starting-point. But good financial planing is holistic, and looks beyond just pension provision."

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookA wonderful selection of salads, starters and mains featuring venison, grouse and other game
Voices
Poor teachers should be fearful of not getting pay rises or losing their job if they fail to perform, Steve Fairclough, headteacher of Abbotsholme School, suggested
voicesChris Sloggett explains why it has become an impossible career path
Arts and Entertainment
Chocolat author Joanne Harris has spoken about the financial struggles most authors face
books
Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' is based on historical events
News
people
Arts and Entertainment
filmSir Ian McKellen will play retired detective in new film
Life and Style
tech
Arts and Entertainment
'Molecular Man +1+1+1' by Jonathan Borofsky at Yorkshire Sculpture park
tv
News
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
Extras
indybest
News
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Sport
Alexis Sanchez and apparently his barber Carlos Moles in Barcelona today
football
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Marketing Manager

    £36000 - £38000 per annum: Charter Selection: Charter Selection are working wi...

    Accounts Assistant, Hammersmith

    £25000 per annum: Charter Selection: Exciting sports company with a strong bra...

    Financial Accountant-IFRS-Gloucester-£300/day

    £250 - £295 per day + competitive: Orgtel: Financial Accountant - IFRS - Glouc...

    Technical Support Engineer - Central London - £30,000

    £28000 - £30000 per annum: Ashdown Group: IT Support Engineer - Central London...

    Day In a Page

    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
    Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

    Hollywood targets Asian audiences

    The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
    Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

    Grindr founder Joel Simkhai: 'I've found love on my dating app'

    Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
    Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

    Is it time to ditch autocorrect?

    Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
    10 best girls' summer dresses

    Frock chick: 10 best girls' summer dresses

    Get them ready for the holidays with these cool and pretty options 
    Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

    Westminster’s dark secret

    Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
    A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

    A History of the First World War in 100 Moments

    Dulce et decorum est: a life cut short for a poet whose work achieved immortality
    Google tells popular music website to censor album cover art in 'sexually explicit content' ban

    Naked censorship?

    The strange case of Google, the music website and the nudity take-down requests
    Howzat! 8 best cricket bats

    Howzat! 8 best cricket bats

    As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
    Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

    David Luiz falls from leader figure to symbol of national humiliation

    Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil