Pension? Pick your own

When Merchant Investors Assurance offered the first pensions over the telephone in 1995 it felt there were many people who wanted to buy them but had no real information on the likely numbers. Yet within days Foreign & Colonial had entered the fray, to be followed by Save & Prosper, Scottish Widows, Legal & General, Marks & Spencer, Virgin Direct, and many others.

Some plans offer a wide range of investments and very attractive features. Eagle Star, which started selling pensions by telephone last January, has a money-back guarantee if the investor changes his mind in the first two years. It will transfer the plan to another pension provider and repay all the charges.

Flemings, another big City investment management group, has done away with its set-up costs, initial charge and pounds 50 annual maintenance charges. A number of the providers, such as Edinburgh Fund Managers, Flemings, Foreign & Colonial and Merchant Investors, offer investment trust-linked plans as those funds carry much lower charges than unit trusts and insurance funds.

"We identified that there were a sizeable number of investors who did not need advice about pensions and were prepared to make their own arrangements," says Harry Kerr, head of marketing at Merchant Investors.

Tens of thousands of personal pensions are now sold by telephone. What nearly all the direct pension providers offer are low charges and relatively uncomplicated plans. "Pensions are not complicated," says Steve Roberts, director of Eagle Star Direct. "What are complicated are the old-style pensions with all their charges and penalties."

The rules for buying pensions over the telephone are the same as for all personal pensions. They can be bought only by those who are self employed or in jobs where the employers do not offer a pension scheme. Unless Gordon Brown, the Chancellor, changes the rules in his budget next month, all premiums will continue to attract tax relief at the individual's top rate of tax.

No commission is paid to advisers, so charges tend to be much lower than with plans offered by the life offices.

That is borne out by a survey carried out by Money Management last year. As the table shows, most of the companies featured as forecasting the top returns sell pensions by telephone. Only Scottish Equitable sells personal pensions through independent financial advisers.

Over shorter periods of five or 10 years, the returns forecast by the direct pension providers far outstrip those from conventional pension firms. Pension direct companies do not impose penalties if payments are interrupted and tend to make lower charges if the pension is transferred.

Direct pensions also tend to be more flexible. Many will let investors retire early without penalty. A good plan will have low charges, an option that will go on paying premiums if the individual is forced by illness to give up work, and let investments be transferred into a low risk fund in the years just before retirementn