Deciphering pensions

Pension providers are gradually making themselves more user-friendly, but altogether too slowly. The second annual report of the Personal Investment Authority this week condemns many of the traditional providers for failing to reduce the charges they levy on personal pensions. A handful have reduced their charges in the last two years, but they are mostly companies whose performance has been exposed as sub-standard and who are not attracting the share of new business they need.

But they are being matched by a number of successful performers who have taken advantage of better disclosure of rivals' charges to raise their own towards the industry average. Some providers are also refusing to cut charges on pensions sold through low-cost outlets.

Although pension providers have, by and large, complied with the requirements to publish their charges and to show how much charges will reduce the value of a pension fund over 20 or 30 years (the figures will make your hair curl), they are still wrapping the true meaning up in concepts that the average punter does not understand. "Reduction in yield", for example, is the jargon word for the percentage by which the fund's value is reduced by charges over its lifetime, but the concept is rarely explained to the layman.

In any case, the reduction is less important than the actual yield before and after charges, and that can only be illustrated by guesstimates of a constant increase, conventionally 6, 9 and 12 per cent a year in the value of the fund.

But that does not mean that no progress is being made. Eagle Star this week started selling no-frills, low-cost personal pension plans by telephone in direct competition with Virgin Direct and Scottish Widows. The premiums are invested in full with no deductions, there are no initial charges, the management charges are just pounds 2 a month plus 1 per cent of the fund, and unlike Virgin the funds are actively managed. But Eagle Star's unique selling point is the promise to refund all fees and charges in full and to transfer the current value of the fund in full if investors become dissatisfied during two years.

Edinburgh-based fund manager Ivory & Sime has launched a pension scheme investing in investment trusts and marketed exclusively through independent financial advisers. Contributions to pensions based on investment trusts are invested in full instead of being subjected to the bid/offer spreads which discourage many people from investing in unit trust-based pension funds. Investors who take out an I&S pension will pay their advisers for advice but they can negotiate commission rebates. The plan will offer flexibility to raise or lower contributions, take contribution breaks or take early retirement, all without penalties.

Abbey Life has also made a gesture towards improved information for potential buyers, aimed at the 30 per cent of the working population who have no private pension plans and the 35 per cent who contribute pounds 50 a month or less. Almost half the population thinks pounds 50 a month would buy a 30-year- old an adequate pension, against a true figure of pounds 250 a month. Abbey Life is offering the first 500 Independent readers who apply a free computer disk or a ready reckoner for those who have no computer, which will show them how much they need to set aside. Call Abbey Life on 0800 202040 and specify disk or ready reckoner.