Pensions: The direct route to a better retirement

The message that we will have to begin saving earlier if we want a comfortable retirement is starting to hit home. More and more pension companies are catering to this new awareness, including telephone-based providers. Tony Lyons looks at the reasons for their growth.

Last year we spent almost pounds 70bn on pensions and insurance against some pounds 27bn a decade ago. Within five years Mintel, the market research organisation, predicts this will rise to pounds 90bn.

One of the largest growth areas in pensions saving is among the under- 35s. Research shows that they particularly like buying their policies directly from pension providers.

The list of companies selling personal pension plans directly to the public is growing. Direct Line is the latest entrant into the field. Many of these providers are relative newcomers to pensions, such as Virgin, Marks & Spencer, various investment trust managers, and now Direct Line. Most of the others are specially set-up subsidiaries of traditional companies such as Eagle Star, Scottish Widows and Legal & General.

The best direct plans offer flexible policies that meet the lifestyle needs of their customers. They allow premiums to be increased, lowered or even stopped at will without penalty. But even better, they do not carry the high charges of their traditional competitors.

Sold by telephone, with little or no advice, they have no need to pay sales teams or expensive commissions to independent financial advisers, which can take up the premiums of the first 18 months or more.

Three years ago, Merchant Investors Assurance, based in Bristol, became the first insurer to offer its pension plans directly to the public, having been taken over by Allianz of Germany, then Europe's largest insurance company. "We took the opportunity to redesign our pensions to meet the needs of the buyer," says Harry Kerr of Merchant Investors. "There had been strong criticisms of pension charges and surrender values and we knew full disclosure was coming."

The company's low-cost plan, based mainly on the investment trust sector, carries a maximum 5 per cent initial charge. While sold through financial advisers, especially those who charge their customers fees, Merchant Investors found itself receiving quite a number of calls direct from the public. So it decided to break with tradition and sell its pension plans directly to the customer.

Since then, the number of companies selling pensions direct is growing rapidly. The choice is now quite large. Most offer investors the choice of only one or two funds to invest in, usually including an index tracker. Others, especially those with investment trust connections, offer more choice.

One recent entrant, Eagle Star, offers a wider range than many of its competitors, allowing policyholders to tailor where their contributions go. In effect, they are able to "customise" their investment strategy.

If you are eligible to take out a personal pension, either being self- employed, or working for a firm without a company pension, or having freelance earnings, and know how much you can put into a scheme and where you want to invest, then by going direct, you will find yourself with a lower cost, more flexible retirement savings plan.

'The Independent' has published a free 'Guide to Direct Pensions', written by Nic Cicutti, the paper's personal finance editor. The 28-page guide, sponsored by Eagle Star, explains what you can do to improve your retirement income and the questions to ask to spot the difference between good and bad pension providers. It is available free by calling 0800 776666. Or look out for the coupon on page 20.