How insurers invested your funds

YOUR MONEY

No one has yet come up with a cast-iron, guaranteed private pension plan telling you now what you will get on the distant day when you retire - or how much it will cost meantime. Neither can you be sure who will provide the cheapest and most rewarding package any more than you can guarantee what an endowment policy will pay. You won't know whether it will have earned enough to pay off your mortgage.

It all depends on the investment performance of fund managers who today may still be wearing short trousers or school dresses.

But more light is being cast on the traditionally secret world of past performance, formerly a close secret between fund manager and company salesman. Track records pointing out who would have given you the best return over the past five, 10, 25 or 35 years are now commonplace, and a new science of forecasting has emerged, based not just on notional rates of return (which gave no clue as to actual performance) but on built- in costs and charges.

A brand new supplement from Money Marketing magazine shows the best and worst performers over anything from five to 35 years, from a list of 24 large insurance companies who sell direct or are commonly suggested by independent financial advisers.

It confirms that the best performing mortgage endowment policies over 10 years have come from Swiss Pioneer Life, which turned pounds 35 a month into pounds 8,477, followed by Royal London and RNPFN, which only sells to the medical profession.

Equitable Life, Clerical Medical and Scottish Mutual, Commercial Union and Scottish Widows come next, while Eagle Star could only make pounds 6,115. The top three also offer the best surrender values.

Swiss Pioneer has no track record over 25 years, and RNPFN moves into top place, followed by Tunbridge Wells and Wesleyan Assurance, with Commercial Union, General Accident and Royal Life the best of the rest. Sun Alliance, Sun Life and Provident Mutual bring up the rear.

On pensions, the record shows that over the past five years, the best performer excluding the terminal bonus added on maturity was Pearl Assurance, which turned pounds 50 a month into pounds 3,954, closely followed by Equitable Life, Scottish Equitable and General Accident.

After adding terminal bonuses, first place went to Royal London with pounds 4,540, followed by Equitable Life, AXA Equity & Law and Friends Provident. Royal London and Equitable Life also offered the best transfer value.

Over 15 years, first place before adding the terminal bonus only available at maturity went to Commercial Union, which turned pounds 30 a month into pounds 16,828, with Scottish Provident and General Accident in second and third place, followed by Norwich Union and Friends Provident. After adding the terminal bonus, however, the prize performance came from Pearl Assurance, which turned pounds 30 a month into pounds 23,465, followed by Norwich Union, Equitable Life, Royal London and Friends Provident.

The worst performer, which shall be nameless, generated a mere pounds 15,646. Transfer values after 15 years ranged from pounds 20,827 to pounds 13,369, and after 10 years from pounds 7,653 down to pounds 4,890.

A single premium of pounds 5,000 paid five years ago would have turned into pounds 8,686 without its terminal bonus at Commercial Union.

The next best single-premium performers were General Accident, Friends Provident and Sun Alliance and Sun Life. When the bonus is included, Friends Provident takes first place with pounds 9,524, followed by Sun Life, Royal London, Commercial Union and Clerical Medical. Britannia Life, in 24th and last place, leaps to first place before the terminal bonus on single premiums invested 10, 15 and 20 years ago, however.

So much for the past. The survey also shows what the same insurance companies would earn on their endowment policies and pension funds assuming the standard 7.5 per cent compound growth projections of endowment funds and 9 per cent compound pension fund growth, after deducting charges and commissions revealed by the new rules on disclosure which came into operation this year.

The lowest charges inevitably project the best performance. With endowment policies, Equitable Life will take pounds 100 a month and put together a package of pounds 16,311, closely followed by AXA Equity & Law, Medical Sickness, Friends Provident and Legal & General. The most expensive include Clerical Medical, Wesleyan Assurance, Refuge Assurance and the Pearl, which would have only pounds 13,500 to show.

On pension funds after five years, the gap between the lowest charger, Equitable Life, which could turn pounds 100 a month into pounds 7,982 and the dearest, General Accident at pounds 6,540, is already 20 per cent.

After 20 years, Equitable Life could have made a retirement fund at age 65 of pounds 60,961, but the Pearl crashes from third place in the five-year projection to last place after 20 years with a fund of pounds 47,900.

After 35 years, thanks to the miracle of compound interest, Equitable Life would turn the same pounds 100 a month for a man now aged 30 into pounds 241,076 while Royal Life would have only pounds 180,077 to show.

The projections are suitably alarming, and suggest that if independent financial advisers do their jobs properly and draw their clients' attention to the differences in charging levels, many of the high-charge companies will either be forced to purge costs dramatically or withdraw from certain business, regardless of whether they achieve investment performances beyond the average.

It may seem unfair of advisers to ignore successful performance, but in the absence of hard facts, they can only base advice on what they do know and they can hardly ignore the impact of charges if they are to fulfil their duty to provide customers with the best advice.