The new way to prepare to be old

While many join a pension scheme at work, millions of self-employed, contract workers and those at firms without a company pension have to make their own pension arrangements. As Abigail Montrose discovers, the cheapest and most convenient way to do that is by using the telephone.

As no commission is paid to salesmen or independent advisers, selling direct to the public is less costly for the pension providers. These savings are passed on to customers in the form of lower charges.

Many traditional providers now sell pensions over the phone, usually through a subsidiary specially set up to sell direct to the public. These include Equitable Life, Legal & General, Eagle Star, Save & Prosper, Scottish Widows, Colonial Mutual, Merchant Investors Assurance, Norwich Union and Sun Life. Direct pensions are also offered by recent newcomers to the industry such as Virgin, PensionStore and Marks & Spencer.

Direct Line is the latest company to announce that it will offer personal pensions over the telephone, while Royal SunAlliance is considering entering this market soon.

Arranging a pension over the phone is very convenient. The company usually has its telephone lines open in the evenings and at weekends as well as during normal office hours. And if you encounter a pushy salesperson, it is easier to put the receiver down and finish the conversation than it is to walk out of a meeting. The type of service offered varies between the direct providers. Equitable Life Direct is a phone-based service but as Nigel Webb, a senior manager, says: "Sometimes people get half-way through a conversation and find they want to speak to someone face-to- face. We then set up a meeting with one of our advisers, free of all charges."

Others, including Eagle Star Direct, Virgin Direct, Save & Prosper, Scottish Widows and Colonial Direct, offer full advice over the phone. You speak to an adviser who tells you about the plan, the funds available for investment and which are likely to be most suitable for you.

Some traditional providers have raised concerns about pensions being sold over the telephone. Given the importance of saving for retirement and the complex rules about pension planning, they are worried people may buy an unsuitable scheme.

But Steve Roberts, head of Eagle Star Direct, sees no reason to doubt the quality of advice supplied over the phone, and says: "We think that any company selling pensions should offer advice. We offer professional financial advice over the telephone. There's no difference between this and that given at face-to-face meetings."

Not all direct pension providers give advice. Marks & Spencer, for example, believes its pension is easy to understand, but if callers want more details on how pensions work, it tells them to contact an independent financial adviser.

Several of the investment trust houses that sell pensions direct, including Foreign & Colonial and Flemings, also offer no advice. Ian Overgage of Flemings says: "Our pensions are only likely to appeal to someone who understands how investment trusts work. We make it extremely clear that taking out a pension is a big decision and suggest that if anyone has doubts about the suitability of our scheme, they should seek independent advice." To keep matters simple, some direct pension providers, such as Virgin Direct and Marks & Spencer, offer schemes with just one fund available for investment. Others have a limited range of funds. Eagle Star Direct, for instance, offers a UK equity fund, a with-profits fund, a secure fund and, from 12 January, a UK tracker fund.

"Customers seldom want anything more than this. Our with-profits fund is the most popular and if we didn't offer it, our plan would be unsuitable for over than half our customers," says Steve Roberts.

Direct pensions are not for everyone. As Brian Barker, pensions marketing manager at Royal SunAlliance, points out: "The telephone is generally most suitable for a customer who already knows what they want to buy".