Beware the poor performers

PENSIONS

Picking the wrong personal pension scheme could leave investors with a retirement fund worth only half the amount paid out by some of the best performers, according to a new survey.

The difference between the best and worst funds can come to more than £170,000 on schemes where monthly contributions of £200 have been paid for 20 years.

The survey by Money Management, the financial magazine, covers with-profits funds, where a minimum sum is paid at maturity, plus annual bonuses that are "smoothed" to avoid volatility.

It also includes unit-linked and managed schemes, which are more closely linked to stock market movements.

In both cases, Money Management shows that some of Britain's best-known insurance companies deliver some of the worst results. Equally, some of the relatively unheard of companies produce consistently good performance.

Among the poor with-profits funds into which savers pay regular monthly premiums are Britannia Life, Guardian, Prudential, Royal Insurance and NPI. Eagle Star and Scottish Mutual figure among the worst for lump sum investments.

The top performers for regular contributions include Axa Equity & Law, Friends Provident, Pearl, Scottish Provident, Sun Life, Co-operative Insurance and Royal London. For one-off lump sum payments, Equitable Life, National Mutual Life and the small Wesleyan and General are among the best.

However, Janet Walford, Money Management's editor and author of the survey, said there are problems in trying to pick the best and worst funds on a catch-all basis, without taking individuals' needs into account: "Every client is unique and will require different benefits from their pension plans.

"Also, the service record and strength of a product provider play an important part in the final selection of a product. The best buys may well look different for other premium levels and for other end dates for performance." In this instance, performance relates to figures up to 1 December last year.

Ms Walford added that past performance was only one aspect of the equation, which must include fund management charges. "It has, however, been our experience that high-charging companies do not normally have great performance.

"This is because the higher charges are not spent on investment managers - they are spent on inefficient or greedy operators."

For with-profits funds, a saver who pays £200 a month for 20 years to Axa Equity & Law would expect to receive a lump sum of £347,017. Commercial Union would pay out £333,699, while Co-operative Insurance would deliver £322,699.

Norwich Union would pay £328,247 and Scottish Widows would deliver £339,455. The average return would be £289,852, an amount also beaten by Standard Life, National Mutual and Equitable Life.

In bottom place is Liverpool Victoria, whose savers could only expect £177,101. Royal Insurance would deliver £223,614 and Guardian Assurance £222,355.

In all cases, savers cannot simply receive the lump sum. They must usually use at least 75 per cent of it to buy an annuity, or annual retirement income.

Money Management singles out six companies as being among the best buys where unit-linked regular premium plans are concerned.

Unit-linked policies buy into pooled investment funds, which range across a vast range of different sectors. Different companies may perform better in one sector than another, making it more difficult to state how much cash is paid out, other than sector-by-sector or for managed funds.

This survey provides all these figures. It also picks out companies where at least 50 per cent of their funds have above-average performance.

The firms are Equitable Life, Norwich Union, Provident Life, Rothschild Asset Management and Scottish Amicable.

Lump sum premium contributions would get the best results from Axa Equity & Law, National Mutual, NPI Norwich Union and Sun Life.

Stephanie Spicer, assistant editor at Money Management, said: "Even with all these figures, it can be almost impossible to identify a best buy from amongst the range of personal pension plans available.

"No one factor should be considered in isolation and investors should always look for consistency in performance over the long term. For peace of mind, savers should be prepared to speak to an independent financial adviser, even when armed with all the facts."