The price of a poor performer: pounds 55,000

The most obvious feature of the main table (right), which illustrates regular-premium personal pensions based on with-profits policies, is the wide gap between best and worst performers at every stage. In cash terms, this gap rises to nearly pounds 55,000 by the time the pensions mature. A similar pattern can be seen for all other products, as a result of the wide variations in the charges levied by life insurance companies.

The top four companies in John Chapman's rankings in the main table are the only ones that have projected above-average future performance and can support that with above-average past performance. In the rest of the table, the order of merit depends simply on the projections the companies have made. The other summary tables (facing page) bear the same message - that only a handful of companies have proven capability to deliver.

A large group to watch out for is the ambitious improvers, such as Scottish Widows, Legal & General and Scottish Amicable. Across a range of products they are projecting better performance in the future than they have achieved the past. This may well be because they have decided to cut their costs to become more competitive.

Some of those at the bottom of the tables are actually projecting worse performance in the future than in the past, for reasons which are unclear. In the main table Scottish Provident and Axa Equity & Law come into this category.

One of the recurring features of the analysis carried out by Mr Chapman is the regular appearance of a handful of mutual insurers in the list of companies with low charging structures. Equitable Life, Standard Life and Norwich Union feature among the best performers among nearly all products on offer to policyholders. Conversely, Royal Insurance, Prudential and Axa Equity & Law, all proprietory companies owned by their shareholders, feature among the bottom five tables.

Another feature of the main pensions table is the poor transfer values for policies in the early years. Only seven of the companies in the main table give you all your money back, even in cash terms without interest, when you transfer after five years. Transfer terms in the first couple of years, which are not generally public, are often much worse, with some companies paying minuscule amounts.

The gap in charges between the top and bottom performers can be substantial. In the case of regular-premium personal pensions, where a person pays pounds 100 a month for 25 years, Equitable Life's final retirement fund, at more than pounds 240,000, will be almost one-third better than Axa's pounds 186,000.

After five years, the value of a General Accident pension transfer, the second-best, is 14 per cent better than Sun Life, third from bottom.

One factor to watch out for is the "halo" effect, where a company has a range of disappointing product charges but is redeemed by a good one. This can provide it with a good sales pitch.

There are relatively few companies with top performance across the board. In an analysis of 10 products, only Equitable Life is always in the top five. Standard Life has five in the top five, Norwich Union and Scottish Widows four, General Accident and Friends Provident three.

A major disappointment from these tables is the relatively poor showing of most of the big "bancassurers" - insurance companies set up by banks and building societies. When they first began to be set up in the early 1990s, it was predicted that companies like Midland Life, Barclays Life and NatWest Life would rapidly grab huge market share by launching cheap products at their large potential client base.

This has not happened in the main. For most products, the banks' insurance subsidiaries are usually dearer than their older rivals. This is partly because the bancassurers have preferred to coast along without competing too heavily. Indeed, in many cases, the big banks do not figure in the tables.

This is partly because they are so new, and there is no way of measuring their long-term performance, and partly because some are poor performers. In some cases, bancassurers do not supply the figures because they are so bad.

Regular-premium personal pensions - with-profits

Company Value at Value at Retirement Ratings: Ratings:past

year 5 (pounds ) year 20 (pounds ) fund (pounds ) projections performance

Equitable Life 7,099 57,961 241,076 A+ A+ A+ A+ A A

Clerical Medical 5,507 54,839 235,363 B A A B A B

General Accident 5,715 53,612 228,685 B A A A X A

Norwich Union 5,500 52,500 225,000 B A A B B A

NPI 5,747 53,618 222,240 B A B B C C

Scottish Amicable 5,705 52,343 223,790 B A B C B B

Sun Alliance 6,500 52,300 215,000 A+ A B C C C

Scottish Widows 6,395 51,135 219,235 ABB BCB

Commercial Union 5,574 49,707 225,809 B B A X C C

Medical Sickness 6,280 46,300 247,000 A C A+ A+ B B

Standard Life 6,442 51,191 206,591 A B C B B B

Scottish Mutual 6,381 48,812 208,576 A B C B B A

Legal & General 5,550 52,055 205,845 B A C C B C

CIS 5,074 50,657 230,540 CBA AAX

Scottish Equitable 5,165 50,958 236,100 C B A C C A

Royal Insurance 5,126 49,010 227,258 C B A C C C-

Wesleyan Assurance 5,516 48,109 210,214 B B B A A B

Eagle Star 4,692 52,279 224,234 C A B A A+ A

Prudential 6,353 49,360 183,502 A B C- A X X

National Mutual Life 5,138 48,643 220,896 C B B C B B

Britannia Life 4,956 51,634 218,000 C B B C C C-

Britannic Assurance 5,447 49,426 201,259 B B C B X X

Scottish Life 4,883 50,433 218,825 C B B B B B

NFU Mutual 4,955 50,958 212,543 C B B B A B

Guardian Financial 5,284 49,885 196,279 B B C X X X

Friends Provident 5,290 43,500 221,000 B C B X C B

Royal London 5,359 48,991 193,999 B B C B A A

Scottish Provident 5,280 49,600 197,000 B B C B A B

Colonial 4,907 48,112 200,901 C B C X X X

Sun Life 4,915 43,865 216,024 C C B C- B B

RNPFN 4,800 31,170 235,435 C C- A X A+ A+

AXA Equity & Law 4,350 42,600 186,000 C- C- C- C C A

Average 5,496 49,549 216,693

Based on investment of pounds 100 a month, starting at age 30.

X= data not supplied or not yet available. Investment funds are assumed to grow at 9 per cent a year.

The first principle in John Chapman's ratings is that a company's final performance - the cash it delivers when a policy matures - is not always the best way of measuring how good it is. More than 70 per cent of savers who start a regular-premium pension policy lapse well before final maturity. It is vital to know what they will be paid should they pull out early.

The new ratings system marks companies on the basis of how much they pay back investors, or give in transfer value, in the early stages of a policy, part way through it, and at maturity. These calculations are done twice. First, the system rates a company's past performance, based on the amount of cash paid out at the three different stages. The same calculations are done again, based on the company's own projections of future payouts.

As explained on the facing page, it is thecharges to policyholders that are the most important determinant of long-term performance. So the projections assume that every company has the same investment performance. Variations in payouts are then a result of differences in costs.These sums are shown in the first three columns.

But Mr Chapman's ratings do not rely on a confusing array of numbers. Instead, they allocate a letter from A+, the best, down to C-, the worst. A company with an A+A+A+ rating is excellent at every stage. A rating of CAA means policyholders will be treated badly if they surrender or transfer early, but well if the policy is kept to maturity. The letters are allocated by calculating how much a company deviates up or down from the mid-point of all the companies in the survey.

The top companies in each category in the main and summary tables are those where good future projections are matched by past performance. In the rest of each table, the rankings are based on the companies' projections of future charges. In addition to pensions, the same rating system can be applied to a variety of other life insurance products, including mortgages and savings policies.

There are ways in which companies can get round the embarrassment of having to admit high charges. These will be discussed next week.