Pensions: Turn the tables to your advantage

IN BUYING a personal pension, your wealth in retirement hinges on making a good choice. A pension which increases annual returns on your fund by just 1 per cent could mean you having several thousand pounds more at retirement.

Past performance and future projections - which show the effect of charges on fund growth - are useful research tools, but past performance is no guide to future returns. However, it can show which funds have consistently provided good returns. Don't just look at the best-performing fund over a short period of, say, five years: this is a sure way to get your fingers burnt.

The table provides a snapshot of how different types of pension, both with-profits and unit-linked funds, have performed over five, 10 and 15 years after charges. The best and worst five funds are shown.

Remember that the risks attached to the classes of fund in this table are very different, as they offer different levels of exposure to the stock market. With-profits funds provide a safety net against market volatility: in good years and bad you receive a proportion of your manager's profits every year as a bonus. You also receive a terminal bonus which is not known until you retire, but can sometimes represent 50 to 60 per cent of your fund.

Unit-linked plans expose you fully to the rollercoaster ride of the stock market. The managed fund option in the table is a vehicle which invests your money across a range of unit-linked funds. The unit-linked funds in the third column are at the opposite end of the risk spectrum to with- profits funds, but far outstrip them in terms of returns.

The best with-profits funds over five, 10 and 15 years are from Co-operative Insurance, Royal London and Scottish Widows: the latter has delivered over twice as much as the worst-performing with-profits fund.

As the table shows, specialist equity funds are where the money is to be made, or at least where it has been in the past. But if safety is your primary concern, you are better off with a with-profits or a managed fund.

Michelle Cracknell of Advisory and Brokerage Services, a London-based independent financial adviser, says the ability of with-profits funds to smooth stock market fluctuations is valuable. "When you retire it's because you want to or you have hit retirement age. You don't want performance dictating when you take your benefits."

Future projection tables, like the one here, show how much plan charges eat into fund growth. All pension providers are required to show the percentage by which your fund's value will fall after charges.The lower this percentage figure, the better the charging structure.

The direct providers tend to dominate the top of future projections tables. In most cases, they can offer cheaper pensions as they offer no advice, so pay no commission or fees to advisers.

Satisfaction is never guaranteed with a personal pension, but thorough research will cut the odds on being left short-changed.

q Sarah Barnett is editor of 'What Investment'.

Top with-profits results - one single premium of pounds 10,000

5 years with-profits funds (pounds )

Co-operative Insurance 17,592

Royal London 16,802

Royal Sun Alliance 16,546

GA Life 16,469

Scottish Mutual 16,216

Worst performer !3,182

5 years managed funds (pounds )

J Rothschild 21,115

London & Manchester Pens - Performance 20,948

Royal Scottish 20,559

Professional Life - Fidelity* 19,920

London & Manchester Pens - Balanced 19,611

Worst performer 14,260

5 years equity linked funds (pounds )

Skandia - Gartmore UK Smaller Cos 28,883

Save & Prosper Financial Secs Intl 28,384

Friends Provident European 28,185

Professional Life Euro equity* 27,856

Skandia -Fidelity European 27,679

Worst performer - Japan 6,124

* Commission-free results. Figures as at 1 January 1997

Source: Money Management

10 years with-profits funds (pounds )

Royal London 36,777

Wesleyan 36,680

Eagle Star 32,993

Scottish Widows 32,847

Pearl Assurance 32,967

Worst performer 23,948

10 years managed funds (pounds )

GAN - Perpetual 41,416

Skandia - Perpetual 38,773

GAN - Fidelity 34,447

Colonial 34,377

Royal London 33,369

Worst performer 24,396

10 years equity linked funds (pounds )

Skandia - Gartmore North American 72,072

Lincoln - North American 64,562

Skandia - Framlington Health Intl 63,263

Skandia - Fidelity European 60,368

Clerical Medical North American 49,573

Worst performer - Japan 6,619

15 years with-profits funds (pounds )

Scottish Widows 92,258

Wesleyan 92,093

Sun Life 88,791

Pearl Assurance 87,620

Royal London* 84,080

Worst performer 40,715

15 years managed funds (pounds )

GA Life 82,360

Canada Life 79,736

Sun Life 78,478

NPI 76,161

Standard Life - Managed 69,780

Worst performer 48,958

15 years equity linked funds (pounds )

Save & Prosper Fin Secs 159,226

GA Life - UK Equity Gen 149,225

Sun Life - UK Equity Gen 122,858

Lincoln - UK Equity Income 115,368

NPI - UK Equity Gen 109,950

Worst performer - property 21,869

Projected unit-linked funds - single contribution of pounds 10,000

Highest projected fund (lowest charges)

5 years 10 years 15 years

1 Virgin Direct 14,777 Equitable Life 21,988 Equitable Life 33,062

2 Equitable Life 14,623 Virgin Direct 21,671 AIG 32,590

3 Eagle Star Dir 14,472 Legal & Gen Dir 21,585 Legal & Gen Dir 32,280

4 Legal & Gen Dir 14,458 Save & Prosper Dir 21,300 National Mutual Dir 32,025

5 PensionsStore 14,343 Colonial Direct* 21,294 Norwich Union 31,895

Lowest projected fund (highest charges)

1 Hearts of Oak 12,710 Skandia Life 18,826 Skandia Life 26,576

2 Mercury Life 13,252 Hearts of Oak 19,302 Albany life 28,201

3 Skandia Life 13,360 Mercury Life 19,493 Mercury Life 28,672

4 Guardian Financial 13,417 Commercial Union 19,621 J Rothschild 28,701

5 United Friendly Home 13,434 Albany Life 19,622 Guardian Financial 28,853

Source: Money Management