A checklist for pensions

WHAT are the rules to follow when considering a personal pension? Do some research on the companies, then prepare a table taking each of the following issues into account. Add up the scores for each issue: the highest-scoring fund wins.

q Always check its past performance over three, five, seven, even 10 years. Look for consistency: a fund that stays in the top 25 per cent of its sector (upper quartile) year after year is better than one that shoots in and out.

Marks out of 10: five for regular "mid-quartile performance", eight for upper quartile, three for bottom quartile.

q Charges can take away a big chunk of your pension savings, so aim for a company whose charges over the lifetime of a pension will be no more than 1 per cent a year, or thereabouts. Look for products that don't penalise you in the early years; what most people need is level charges throughout the product's lifetime.

Out of eight: six for firms with flat charging structures, four for low annual charges below 1.25 per cent, two marks for charges above 1.25 per cent. Seven marks for level charges that still come in at less than 1 per cent a year.

q Flexibility means finding a pension where you can halt contributions, reduce them or increase them - without paying penalties.

Up to six marks for flexibility, none for a pension where charges are levied if contributions are halted.

q If you are incapacitated, you need to know your pension contributions will be kept up. This is known as "waiver of premium".

Three marks out of six if the pension offers this, five if it defines your disability as not being able to do your job, as opposed to any job.

q In recent years, several companies have begun to offer cheap pensions over the telephone. You should still expect a decent service.

Four marks - of which two are for a choice of funds, one more if a company can send out someone to see you at your request.

q The 'Independent on Sunday' has produced a Guide to Direct Pensions, sponsored by Eagle Star. Call 0800 776666. or fill in the coupon.