Pension planning: It's as simple as using the phone

CAN'T face all the hassle of starting a pension? You no longer have any excuse. You can pick up a personal pension plan over the phone. The direct providers - companies such as Virgin, Direct Line and Eagle Star - pride themselves on being able to set up your pension right away.

Their sales pitch is that they offer cheap and simple pension plans which are convenient to set up. "A very straightforward pension with low charges and a couple of simple investment choices is what most investors want," says Martin Campbell, product development manager at Virgin Direct.

Certainly, there is much to be said for this approach One of the difficulties with the personal pension industry has always been its liking for complicated fee structures, often masking steep charges.

In contrast, the direct providers' charges are simple. You pay a one- off fee to set up the plan and then a low annual management fee. Direct pension providers' investment options are usually easy, too. Typically, the phone-based providers offer a core fund, an index-tracking unit trust that mirrors the performance of the UK stock market, and a money or bond fund, into which you can switch when nearing retirement for caution's sake. A handful of providers, especially those with investment trust links, offer a much wider choice of funds.

The direct providers have recognised that a disadvantage with traditional personal pensions is that investors are often penalised if their circumstances change. If you have a personal pension plan with a traditional provider and you need to vary the premium you pay, or stop paying for a period, the chances are you'll have to pay a hefty penalty fee. The phone-based providers, on the other hand, have abolished all such penalties.

So what's the catch? The conventional pension providers defend their policies. First, says Tom King, of Standard Life, "Direct pension selling really has to be on an execution-only basis, with no advice offered." He thinks most investors feel uneasy buying a pension without getting some assistance.

In fairness, direct providers (Virgin and Direct Line, for example) do offer advice to those investors who want it, although they can only recommend their own products. However, it is true that others, such as Marks & Spencer, do not. So only call these companies if you are confident about what you want.

Another problem with the direct providers, says Mr King, is the thing they are most proud of - the simplicity of their plans. He explains: "Products sold face-to-face are likely to be more sophisticated, the direct investor gets a leaner contract".

This is a problem in two senses. First, if you want a wide range of investment options, you won't usually get it from most of the direct providers. Second, many don't offer some of the features usually available with personal pensions: the option to use the plan to opt out of Serps, or a waiver of premium - insurance that pays your premiums if you cannot work because of ill-health.

However, this criticism enrages the phone-based providers. Mr Campbell says: "The old guard are trying to convince people that because their products are more complicated, they're somehow better. But a pension boils down to a tax-efficient way of saving for retirement and all these bells and whistles just get in the way of that."

Just as important, he argues, is that buying by phone offers investors an easy escape route: if they don't like what they hear, they can simply put the phone down.In fact, if you have only a small amount to invest, this might be the right option. While the direct providers all accept low monthly premiums - at Equitable, for example, the minimum premium is pounds 25 - investing small amounts can be costly. The only problem in the small print of Virgin's pension is that you pay an administration charge of pounds 2 on each monthly contribution. This sounds trivial, but if you're only paying premiums of pounds 50, that is a 4 per cent charge each month.

On the whole, though, the direct pension providers offer an excellent deal, not least because they have exposed many of the questionable practices of conventional providers. If you want a cheap, no-frills pension that is easy to understand, the phone-based firms are your best bet.

q Contacts: Direct Line, 0845 300 0333; Eagle Star, 0800 776666; Equitable, 01296 385200; Fleming, 0800 829100; Legal & General, 0500 656565; Marks & Spencer, 0800 363432; Merchant Investors, 0800 374857; PensionStore, 0171 222 4290; Scottish Widows, 0345 678910; Virgin, 0345 900900.

q David Prosser is features editor of 'Investors Chronicle'.