Money: 'Put me through to a pension'

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The Independent Online
At the start of next year Eagle Star Direct hopes to sell pensions over the Internet. This will make it the first company in the UK to use the Web for selling low-cost retirement plans.

"We already offer household insurance over the Internet," says Steven Roberts, head of Eagle Star Direct. "So it seems a natural progression. People want good value for money, good service and not to be bothered by salespeople."

Direct pension providers have done much to reduce the traditionally long, involved procedure in buying a pension. Gone is the complicated question- and- answer session with a salesman or financial adviser. Instead, you can pick up the telephone, dial one of the companies that sell pension plans direct to the public, and someone will ask you a few simple questions before sending you a package of information.

Operating from a single base, generally offering little or no advice, and paying no commission to middle men, they have passed on savings in lower charges than traditional rivals.

In a recent survey by Money Management magazine, direct providers dominate the league table of those forecasting the best pensions. For someone paying pounds 200 a month for 25 years, they will provide on average a fund worth around pounds 182,000. This is nearly pounds 10,000 more than the average of the traditional pension companies and over pounds 25,000 more than the lowest forecast.

Only Equitable Life among the longer-established companies offers as good a deal on charges. But unlike its traditional rivals, it has always offered a low-cost alternative, based in part on its policy of not paying commission to financial advisers.

There are now more than a dozen pension providers selling direct to the public. Some like Virgin and Marks & Spencer, while new to pensions, are household names. Others like Eagle Star and Legal & General have set up subsidiaries to sell pensions over the phone.

Personal pensions can be taken out by anyone in employment who is not a member of a company pension scheme or who is self-employed. Those with a company may be eligible if they have freelance earnings.

Under half the working population, 11 to 12 million people, are in company pension schemes, meaning that more than 12 million can save towards their retirement through a personal pension. Tax relief is given on premiums at the top rate of tax paid by the investor.

Since it began its pensions operation nearly a year ago, Virgin Direct has become one of the most successful companies in the business; Tony Wood, the head of marketing, claims it has sold 10,000 pension policies. Others have not been so successful. PensionStore, which began operations this year, recently shed half its staff because sales were much less than it was expecting.

The investments the companies offer range from the sophisticated to the straight- forward. On one hand there are those with just two or three funds. Virgin Direct, for example, has just a Growth and an Income fund. The former invests in the Virgin Tracker fund, which mirrors the performance of the FT-SE All Share Index. Within 10 years of retirement, Virgin suggests that investors move 10 per cent of their investment each year into its Income Fund. This invests in gilts and bonds, so its unit price should not fluctuate as much as share prices do.

More sophisticated investors, who want a wider choice of funds, are catered for by direct providers which specialise in investment trusts. For example, Flemings, one of the largest fund management groups, offers investment in any of its own trusts. Switches can be made cheaply between them.

q Contacts: Merchant Investors Assurance, 0117 926 6636; Virgin Direct, 01603 215717; Eagle Star Direct, 01242 258556; Equitable Life, 0171 606 6611; Edinburgh Fund Managers, 0131 313 1000; Flemings, 0171 638 5858.