Take the direct route for your pension plans

NOT SO long ago, buying a personal pension seemed so complicated that we needed an adviser to get it right. But since the mid-Nineties, telephone-based providers have entered the fray.

Part of the argument for going direct is that by cutting out fat commissions payable to middlemen you will buy a cheaper pension, where more of your monthly premiums go straight into your pension pot.

The changing structures built into commission-paying plans sold by company representatives and independent financial advisers (IFAs) mean that a large part of the premiums payable in the first few years go in charges.

Many of these plans also carry "allocation rates" of less than 100 per cent, another way of saying that only a part of your money gets invested into the pension fund. Watch out also for "bid-offer spreads" - the percentage difference in the price you pay for fund units and their value when you cash the plan in.

Insurance companies like Legal & General or Scottish Widows have both preserved this changing structure with their direct pension plans. For instance, Legal & General has a 5 per cent bid-offer spread on units in its direct pension. The company also offers an allocation rate of 102.2 per cent on contributions. Deduct 5 per cent from 102.2 per cent, and you find that only 97.2 per cent of your premiums are in fact being invested.

Virgin Direct and Eagle Star have no bid-offer spread. But they do charge pounds 2 a month for contributions into their schemes, which penalises those making smaller payments. Virgin also levies higher-than-average management charges (for telephone providers) of 1 per cent.

Marks & Spencer has no bid-offer spread, but lower allocation rates - down to 95 per cent of premiums - which makes its plan more expensive than, say, Legal & General's. It also charges pounds 1.75 a month for contributions.

Some plans have very low minimum premiums - just pounds 30 a month in the case of Scottish Widows and Marks & Spencer. Look out for contract options such as "waiver of premiums", which insures you against being unable to pay premiums due to ill-health.

Despite these many differences and charges, even the highest-charging direct plans cost less then the average charges payable on commission- paying plans.

Fund choice may be limited at times. Virgin's main pension is a tracker fund that matches the performance of the FT-SE All-Share index. Flemings offers a range of 18 actively managed investment trusts available through its telephone plan. Meanwhile Tesco has available a stable of five funds, which includes both UK and International growth funds.

Despite the growing market for telephone pensions sales, Tom King, a senior manager at Standard Life, thinks that much of the claims about the advantages of buying a pension over the phone are just marketing hype. "We are committed to selling our plans through independent financial advisers and are happy to pay them commission," says Mr King. "The reason for that is simple; savers need advice about pension planning."

Some of the direct providers, including Virgin and Fleming's, will offer their clients specific advice, but only by telephone. Eagle Star offers its customers the option of seeing one of its salespeople face to face, if they so wish.

Ms Willis warns: "Don't confuse this with the genuinely comprehensive advice you can get from an IFA. These plans are a low-cost starting-point. But good financial planing is holistic, and looks beyond just pension provision."