The best policy

Endowments: Nic Cicutti looks at the firms worth investing with

Investors hoping to set aside sufficient funds to pay off interest- only mortgages, or ensure a decent standard of living in retirement, could find themselves in serious financial danger if they allow the wrong company to look after their money.

A survey this week shows variations of up to pounds 180,000 between the top and bottom performers among certain types of executive pensions.

For with-profits endowments, used alongside home loans, there is a 50 per cent difference between the top performers - Royal National Pension Fund for Nurses (RNPFN), Royal & Sun Alliance and Wesleyan - and those at the bottom. The survey of with-profits policies, among the most detailed to appear each year, is carried out by Money Marketing, a specialist financial magazine.

Sandra Grandison, who edited the survey, says: "We have taken the opportunity this year of comparing figures from previous surveys in order to analyse trends in the endowment market over the past seven years. We have found that a number of companies were consistently near or at the bottom of particular tables since 1991, including Guardian, National Mutual, NPI and Sun Alliance, now part of Royal & Sun Alliance."

Money Marketing's survey is the only one to use a ratings system for company products first put forward by the Office of Fair Trading. The OFT system classifies products as either A, B or C, depending on how they score at one of several points in their lifetimes.

The three points are - loosely - the value of a policy when it is surrendered (or transferred in the case of a pension) shortly after being started, midway through its life, and how much it is worth at maturity. "A" denotes an excellent product at that point, "C" being among the worst.

Therefore, a rating of ABC suggests a high transfer or surrender value shortly after the policy is started, reducing at mid-point. However, the final payout is poor. The converse is true for a product with a CBA rating.

For with-profits endowments, only eight companies show a rating of BBB (good to average) or above for both 10 and 25-year policies: Clerical Medical, RNPFN, General Accident, Royal London, Scottish Widows, Standard Life and Wesleyan.

The above figures reflect actual performance among the 26-plus companies surveyed. Not all companies sell with-profits policies: some market only unit-linked ones, which more closely follow stock market performance, hence the absence of many firms.

Several others refused to take part, including NPI and Scottish Equitable, claiming that since they no longer sell with-profits policies, details of maturity payouts are unnecessary. Britannia argued that if others were not taking part, it would not do so either.

The survey notes, however, that when these companies did supply information previously, they all appeared consistently at the bottom of the tables.

Because past performance is at best only an imperfect guide to the future, the survey also focuses on company charges. It does so by assuming identical growth for all funds plus inflation and earnings and then using own charges to see how much would be paid out at maturity.

Here, Equitable Life dominates the results, followed by Friends Provident, General Accident, Legal & General, Norwich Union, Scottish Provident, Scottish Widows and Standard Life.

For pensions, Clerical Medical, Eagle Star, Equitable Life, National Mutual, Royal London and Scottish Mutual have consistently good past performances. In terms of charges, General Accident, National Mutual, Norwich Union and Scottish Widows are among the best.

The Money Marketing survey also reveals that despite greater disclosure of charges over the past few years, the average annual charge, or "reduction in yield", rose slightly for 25-year endowments last year compared with 1995. For pensions, annual charges in 1996 were the same as last year's.

The lesson for policyholders tempted to buy a with-profits policy is to buy this guide, read it carefully and invest sensibly.

Copies of the guide, priced at pounds 4.95 (p&p inclusive) are available from: Money Marketing, St Giles House, 50 Poland Street, London W1V 4AX.