Eagle dares to go to the people
Personal pensions don't have to be expensive or incomprehensible. Nic Cicutti looks at a new wave of simple plans sold over the phone
Sunday 12 January 1997
Eagle Star's pension, to be sold over the telephone, will place no initial charges on policyholders. They will pay a pounds 2-per-month levy instead, plus a 1 per cent annual management charge.
Apart from a two-year guaran-teed "free transfer" option that the vast bulk of savers are unlikely to take up, and a slightly wider choice of funds, the product is unremarkable in itself.
Most of its features, laudable as they are, resemble those of several rivals, including Virgin Direct, Marks & Spencer, Scottish Widows and others already active in the telephone sales market.
In some cases, it may not even be the cheapest product in the market over the longer term, or for smaller contributions.
What makes Eagle Star significant is the fact that its decision to offer such a pension boosts the small band of providers now operating in the same market, confirming the growing trend away from high-spec, expensive and opaque products that no one can understand.
Eagle Star's move into telephone sales follows the success of companies, most notably Direct Line, battling for business in the motor, household and contents insurance market. It also comes in the wake of First Direct, the equally successful telephone banking operation launched by Midland Bank, which has 650,000 customers and claims to be running at a profit at long last. Most other high-street banks offer a similar telephone service to their account-holders.
It was once assumed that selling pensions over the phone was a near-impossible task. Pensions, we were told, were so complicated and involved such in- depth financial planning that only face-to-face meetings with a salesman or independent adviser were suitable.
In fact, says Duncan Mackechnie, who heads the telephone sales operation at Scottish Widows, customers prefer getting their information over the phone.
"We should not underestimate the fear that people have of being in situations where they are put on the spot by a pushy salesman," he says. Scottish Widows put this theory to the test with a trial run beginning in October 1995. "When people called us, we started to ask how they wanted the first interview.
"This is where we obtain details of their financial circumstances to allow advice to be given. About 70 per cent said they wanted this to be done over the phone. By this time last year it had reached 95 per cent."
Since then, Scottish Widows has refined its service further and last year 20 per cent of its pensions were sold directly over the phone.
Steve Roberts, the director responsible for Eagle Star's life and pensions sales on the phone, argues that his product is even better: "We have pared costs to the bone and simplified it as far as is prudent."
The company has trained its telephone operators to offer advice, and all are expected to have passed the industry's basic professional qualification, the Financial Planning Certificate. For clients who prefer it, home visits can also be arranged.
Ian Owen, managing director at Eagle Star Life, adds: "Research indicates that something like 10 per cent of people say they would like to sort out their pensions over the phone. We hope to gain 30 per cent of this market, which will expand substantially."
Mr Owen acknowledges that some rivals have got there first: "Virgin Direct has done the consumer a favour by demonstrating that it is easy to buy a pension over the phone. Now we have picked up the ball they started rolling and given it a mighty kick."
Martin Campbell, product development manager at Virgin Direct, which has offered a near-identical pension for some months, says: "It is good to see that Eagle Star is following our initiative.
"Those who are threatened by this launch are not companies, like ourselves, which understand what people really want. It is competitors which stick with existing charging structures that will be affected."
Despite the likely success of the telephone sales initiative, a handful of companies operating mainly through a traditional sales force still manage to be competitive.
Equitable Life, one of the UK's oldest mutual life firms, offers a choice between with-profit pensions, which are safer, and the unit-linked variety, which is more closely tied to stock market performance.
Unlike the others, Equitable Life charges a "bid-offer spread" of between 4.5 and 5 per cent, an initial charge on all contributions made by policyholders into their pension scheme. However, the company only charges a 0.5 per cent annual management charge and does not levy the monthly plan fee of pounds 2 imposed by Virgin and Eagle Star, pounds 1.20 by Marks & Spencer, or pounds 1.75 by Abbey National.
This charging structure has the advantage of being cheaper for smaller contributions. Over five years, and assuming monthly payments of pounds 50, total deductions are pounds 181 against Eagle Star's pounds 228. Over a longer period, the cumulative effect of a smaller annual management fee also pays dividends.
Irrespective of the slight differences between companies, the important point is the combined willingness to break the personal pension mould and start again. For a new generation of pension-holders, life will never be the same.
q The 'Independent on Sunday' has produced a free 'Guide to Pensions Planning', sponsored by Equitable Life. For your copy, call 0800 137372, or fill out the coupon on this page.
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