One cheer for the personals

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The Independent Online
IT MAY be rather heretical to say so, but there is an air of hysteria building up over the pensions transfer business.

We have been told about mis-selling and the danger of leaving an index-linked scheme for the perils of an unprotected ride on the stock markets.

Pensions are not only boring but complicated as well and easy to put over as 'a good thing'. So it is not hard to see how slick salesmen trade off people's fear of an impoverished old age and hope of a killing on the stock markets, to persuade them to trade in a boring old pension built up with one sixtieth of final salary for every year of service, blah blah blah.

But I would like to voice a muted cheer for personal pensions.

For a start they are more transparent than schemes based on your salary, and it is easier to keep track of their outcome.

A much-trumpeted defect of personal pensions is that, unlike almost all company schemes, they do not provide a lump sum if you die before drawing benefits. But firstly, the cash in the pension in modern schemes will be available as part of the estate and, secondly, those hard-sell salesmen must want to push life cover, too.

The trump card played by those lamenting the selling of personal pensions is the defence against inflation offered by public sector schemes, but not private ones. Inflation is currently 1.4 per cent and forecasts are that it should remain comfortably below 5 per cent.

Forecasts can, of course, be wrong, and the past is not necessarily a good guide to the long-term future. The cost of buying a pension on retirement with inflation- proofing is at least a third more than buying a pension with level payments. But perhaps that costing relates to a past world. On the other hand the risk of having the value of a fixed pension wiped out by inflation is so great that any form of protection against it is worth having.

Pension calculations have to follow the Government- sanctioned guidelines. That means making judgements on the basis of pensions growing at 6 or 12 per cent. But a rational person who has seen the actual performances might come to different conclusions.

The average managed pension fund grew by 23.8 per cent over the past year. Even the worst one - Lifetime Managed Security - grew by 5.3 per cent over that period.

But all this does not exonerate the salesmen who foisted personal pensions on those who relented to pressure rather than making rational decisions.

I suspect many of the salesmen were just as much in the dark about the merits of taking out a personal pension or staying in a company scheme as the 'victims'.

But in most cases they were motivated by the commission that would come their way if they sold the personal pension compared with the zero reward for recommending staying in the old company scheme.

It is a pretty convincing argument for paying for advice rather than relying on those with their own financial agenda on your affairs.

SMART cards are coming. They are poised to overturn the obvious benefits of using credit cards - you pay for the goods and services long after you have enjoyed them.

With the new smart card invented by Nat West being tested in a pilot scheme next year, you can pay for that meal, newspaper or basket of groceries long before you even leave home.

The idea is that you charge up the card by using your telephone or an adapted cash machine and then it is accepted as cash.

It eliminates the need for the banks to handle all that expensive cash, and the retailers get secure payments.

But someone somewhere in the headlong rush into the next technology has forgotten to ask a simple question: why on earth should the public want this card?