Putting off the pension plunge could prove costly

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The Independent Online
Reports in this newspaper that a secret regulators' report had found significant cause for concern over Prudential's methods of selling private pensions - and was a key factor in the resignation of its chief executive, Mick Newmarch - must furthe r rock consumer confidence in pensions.

The public, by now thoroughly confused, could be forgiven for throwing up its hands in horror and forgetting all about pensions. After all, if you can't trust the Pru, who can you trust?

The problem is that there is no viable alternative to a properly funded pension. With an ageing population, a pension may have to provide an income for a good 30 years of our lives.

If one does not invest in pensions, what are the alternatives? Building societies might seem an obvious choice. However, over a 10-year period, £1,000 invested in a Halifax 90-day account would have turned into £2,044 with interest reinvested. The top managed pension fund over that period produced £4,944 net of charges, and the worst fund produced £2,763. Pensions also attract tax relief, unlike building society investments.

PEPs are proving increasingly popular because of their flexibility and tax-efficiency. But because the fund is accessible, it will be prone to raiding, a temptation to even the most disciplined saver.

A temptation to delay effecting a pension until confidence is restored will prove very costly. A delay of five years will reduce a pension at retirement by approximately 25 per cent.

Obtaining good advice is therefore key to the whole issue. So it is useful to examine how far the pension transfer scandal, which could result in an industry-wide compensation bill of £2bn-plus, has spread.

It is becoming apparent that it is the the bank-owned insurers and company salesman who have been most tarnished. However, a small number of independent financial advisers (IFAs) had marketed actively to attract pension transfer business and face potential closure if they cannot meet their liabilities.

All IFAs should by now have identified high-risk cases, including the transfer from "bomb-proof" schemes such as those of nurses and teachers, and be awaiting instructions from their regulator. Those who have been disadvantaged will be compensated.

When seeking advice, you should always ask for justification of the choice of pension. Independent financial advisers assess a pension on many bases, some of which are insurance company strength, charges, performance and flexibility of the pension as faras stopping and starting is concerned.

An adviser should satisfy you on all these points before you proceed. Look at independent surveys. Pension providers' own sales literature will not show them in a poor light.

It is important to discuss whether you are paying your adviser on a fee or commission basis and how much they charge for the advice. Ask if they will review your pension regularly, as your circumstances will change and portfolios can quickly become out of date.

Amanda Davidson is a partner at Holden Meehan, Independent Financial Advisers. Telephone: 0171-404 6442

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