The best and worst: Morass of charges for pension plans

FINDING the best personal pension plan requires picking your way through 'an absolute minefield' of charging practices, according to Janet Walford of Money Management magazine.

The author of the magazine's personal pension plan survey said the insurers and unit trust groups that provide pension policies 'have weird and wonderful ways of charging' - adding that some companies get 'more devious as time goes by'.

One thing that most companies have in common for schemes with monthly or annual premiums is a 'capital units' charging system that Ms Walford says can be deceptive, since it really means a reduced allocation of units.

At National Mutual, for example, all of the units bought with premiums during the first year are subject to an annual charge of 9 per cent until the policy is five years from maturity.

Single premium plans tend to offer better returns and are easier to understand in terms of charges. National Mutual, which ranks 11th in the list, has no capital units system on single premium plans, for example, but has four different components to its charges. Only 98 per cent of the premiums go to buy units; it makes another 5 per cent on the bid-offer spread (units are purchased at the offer price and cashed in at the bid price, which is typical of the industry); there is a flat pounds 30 administration fee; and the annual investment management charge is 0.36 per cent (the lowest in the business, says National Mutual). If all this seems complicated, Money Management cites National Mutual's plans as some of the clearest.

Invesco, the top performer in the league table, has an allocation percentage of 105 per cent, a 5 per cent bid-offer spread, a monthly pounds 2 charge to run the plan and an annual management charge of 0.75 per cent. But despite the fact that Money Management describes the top five plans as commission-free, Invesco allows independent financial advisers to receive commissions of up to 5 per cent on each plan sold. Provident Life emerges as the front runner over 10, 15, 20 and 25 years.

Colonial Mutual defends its low position in the table, saying its charging structure favours longer periods. 'The cost of setting up a short- term policy is very much the same as for a long-term policy,' a spokesman said.

Proof of the greater financial efficacy in general of single premium plans comes in some other statistics from Money Management. On average 10.2 per cent of premiums are absorbed in charges on five-year pounds 10,000 single premium plans, compared with 13 per cent for five-year monthly premium plans. The highest charges on single premium plans (Colonial Mutual's) account for 14.7 per cent of premiums, compared with the highest on monthly premiums (Eurolife's) at 24 per cent.

------------------------------------------------------------------------ UNIT-LINKED PERSONAL PENSIONS ------------------------------------------------------------------------ The best pounds 1 Invesco 15,412 2 Provident Life 15,349 3 Provident Mutual 15,345 4 Professional Life 15,273 5 Mercury Life 15,090 6 Scottish Widows 14,938 7 Friends Provident 14,785 7 Inter Life 14,785 7 Royal Liver 14,785 10 Equitable Life 14,737 The worst 86 GA Life 13,931 87 Gartmore 13,886 88 Hambro Guardian 13,874 89 Royal London 13,866 90 Colonial Mutual 13,737 ------------------------------------------------------------------------ Projected market value in five years of stand-alone pounds 10,000 single-premium fund effected on 1 July 1993, assuming an annual growth rate of 10 per cent. Based on a man retiring at 65 on 1 July 1998. Source: Money Management ------------------------------------------------------------------------