Research vital on entering expanding pensions market

Putting large sums into a pension fund is a serious investment and one that needs careful consideration. Directors and business owners who take such a high funding route often do so by way of a selfadministered pension scheme, the advantages of which we recently outlined on this page. But self-administered pensions are not universally suitable: they require a considerable amount of time and attention if they are going to work correctly.

You need to have full confidence in the adviser who is not just going to help you put the investment portfolio together, but who also acts as your pension trustee. One of his most important jobs is to liaise with the Revenue Commissioners and to ensure that the scheme complies with all pension regulations.

Up to now the other option has been to purchase an executive-style personal pension plan from a life assurance company from which you can select one or several different investment funds. Some plans are better than others in terms of fund management and administration; some offer better value on the charges front. The cost structure and final fund value will be affected by the way investment units are allocated and whether you take a fee or commission-based payment route.

Just launched by Ulster Bank in association with Canada Life is Foresight, an interesting alternative to both of the above. It offers three product choices, one of which includes a minimum pension contribution of £25,000 into a personalised stock portfolio managed by NCB stockbrokers, whose parent company is Ulster Bank.

The other two options are an Ulster Bank Investment Managers (UBIM) Pension Managed Fund and a Canada Life With-Profits Investment pension plan. A combination of all three is possible, but the minimum investment would be £25,000.

Investment advisers we spoke to say this new product is an interesting development because it falls halfway between a fully self-administered scheme and a conventional pension plan. "However, I would caution against it being promoted as a self-administered type arrangement since the NCB option is only offering investor access to a `specific stock selection' through NCB's private client division," says Mr Paul Coughlin of Financial Planning Strategies.

"The Achilles heel of the Foresight plan is that the Revenue specifically precludes investment in property and unlisted securities if you take the NCB route. A lot of high net worth business owners want to invest in property for their pensions though you can get around this with an integrated investment strategy. I'd also warn that regular trading on specific stocks could escalate charges and substantially reduce fund values."

As with genuine self-administered pension funds, there is an initial charge to set up the NCB stock portfolio option. It amounts to £1,500 plus an annual fee of £500 plus a standard 1 per cent dealing fee. The charges for the other two options - the UBIM managed fund and the Canada Life with-profit fund are the standard 5 per cent bid-offer spread and a reasonable 0.75 per cent annual management fee. There is also a £1.50-a-month policy fee. "Compared to a self-administered scheme, these charges will certainly add up," says Mr Coughlin.

Both plans can be arranged on a regular or single premium basis and on a commission or nil-commission basis.

While the NCB Personalised Portfolio plan, with its high annual contribution, is aimed directly at high net worth company directors or business owners, the other plans can be arranged for an individual, as a group scheme or in the form of a buy-out bond for transfer from other schemes (this also applies to the NCB option).

The Canada Life With Profits Investment offers a guaranteed minimum annual return of 4 per cent; the Ulster Bank Unit Linked Investment option gives the contributor access to the pension benefits consultancy and a wide range of international asset funds. For more detailed information about this new product, contact an independent financial adviser.