Funds see future in pensions
Sunday 19 March 1995
Meanwhile, the Government has made it clear it is not going to foot the entire pensions bill and is trying to persuade individuals to provide more for themselves in old age.
While unit trust managers are authorised to provide pensions, they have shown little enthusiasm for doing so. Some of the larger managers own life assurance companies, the traditional providers of pensions, and see no reason to take business away from them.
This may be about to change. The furore over the mis-selling of personal pensions by life insurance companies - plus the dawning realisation of just how much they charge for their products - is tempting some managers into the market.
At the same time, employers are moving away from final-salary occupational schemes, where pensions are based on the number of years a person has worked for one company, towards money-purchase schemes.
Under the latter system, companies pay an agreed sum into their employees' pension pot. At retirement, the lump sum is used to pay for an annual income. But it is unlikely that the final sum will be enough to provide for a comfortable retirement.
Gartmore, Rothschild Asset Management and Framlington offer individual personal pensions, while Fidelity is targeting the corporate market.
Investment trust managers are not authorised to provide pensions, but Foreign & Colonial and Dunedin have circumvented the block by tie-ups with authorised providers.
Foreign & Colonial joined forces with Provident Life a year ago to offer personal pensions and a free-standing additional voluntary contributions plan, whereby employees can top up their company pension scheme.
Although the pension plan was initially marketed only to its clients, in the past few weeks F&C has offered it to the wider public through independent financial advisers.
If bought through an adviser, the plan offers investment in nine F&C investment trusts and will accept transfers from previous pension schemes, including employer-run ones.
If bought direct, the plan allows investment in just three trusts - the F&C Investment Trust, F&C Emerging Markets and F&C Income Growth.
F&C believes it has one of the cheapest pension plans on offer. Charges include a £100 initial fee, an administration fee of £50 a year and a 0.5 per cent annual management charge. Costs are in addition to the underlying investment trust charges.
Fidelity Pensions Plus offers investment in a possible 26 unit trusts and managed funds, ranging from high-risk international equities to low- risk cash and bonds. Although it is targeted at the corporate client, David Calfo, a director of Fidelity Pensions Management, says the ultimate client is the individual member. The emphasis is on flexibility and customised service. Employees receive a programme of education and access to a telephone hotline. Open from 9am to 9pm, Monday to Friday, this gives up-to-date valuations of accounts, arranges transfers, and answers questions.
Gartmore and Rothschild, two other pension providers, both stress the transparency of pricing and lower charges of unit trust pensions compared with traditional life company schemes. There is also greater flexibility to suspend or reduce contributions, transfer to another scheme or change retirement dates, all without penalty.
As well as providing pensions, unit and investment trusts in personal equity plans can provide a useful additional source for retirement savings. Payments into a PEP come out of taxed income, but the proceeds are tax free. By contrast, pension payments are tax free, but the annuity bought with the proceeds is taxable.
PEPs can be more suitable than pensions. Employees and the self-employed hitting their pension caps can top up with PEPs, while non-earning spouses can take out a PEP to which they or their partners can contribute.
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