High costs mean low returns

THE results from 15 year, with profit and unit linked pension contracts make very encouraging or very disappointing reading, depending on your pension contract (see Tables 2).

The latest Family Money / TIPS Ltd Personal Pension Survey shows that anyone, with a Norwich Union with profit contract that matured on January 1st, 1996 rather than on January 1st, 1995 has done very well indeed their £30,000 investment (£2,000 per annum for 15 years see Table 2) was worth £106,247 as opposed to £84,022 on those respective dates. But conversely, if GRE Life happened to be your chosen pension provider, your 1996 maturity value had slipped from its 1995 value of nearly £106,000 to a mere £80,534 in 1996.

An ever greater divergence of values can be seen from the 15 year unit linked results the best performing fund, from New Ireland, returned £93,638, while at the bottom of the ranks was Irish Progressive with a return of just £71,044, a difference of £22,594. When compared to Norwich Union, the difference amounts to £35,203.

The main reason for the disparity between Irish Progressive and the other pension providers is the high level of charges with which Irish Progressive's pensions were burdened over the past 15 years. As much as £17,407 was absorbed in costs over the 15 years had these costs not existed the maturity value of the pension would have increased to £88,451.

Investors with 10 year New Ireland contracts felt the effect of costs quiet severely. However, investors with 15 year contracts with the same company saw their reduction in yield fall to just 1.02 per cent. Total charges for the 15 year contract amounted to £9,105. Without them, the total fund would have been worth £102,743.

For the first time, 20 year pension contracts have been included in the Family Money / TIPS Ltd Personal Pension Survey. As Table 3 illustrates investors who paid a total of £40,000 over the period, would have received £241,814 from Scottish Provident on January 1st, 1996, £236,701 from Standard Life and £215,562 from Norwich Union.

In his analysis, the report's author, Mr Eddie Hobbs warns that olders of with profit policies maturing over the next number of years should not expect the current yields on 15 year and 20 year policies to continue, and should instead expect a convergence of these yield levels with those of short term, 10 year, policies.

"The consistent view held by this report over the past number of years was that with profit payouts were at an artificial level and were unrepresentative of the return on assets."