The flexible drawdown plan from Eagle Star is one of latest entrants into the competitive income-drawdown market. Our panel review the product and compare it with similar plans offered by Scottish Widows and Winterthur Life.
The panel generally agree that the Eagle Star plan is suitable for its market.
Bottriell says: "The suitability of the Eagle Star plan is excellent. It seems to have all the features you would expect of such a plan. The Scottish Widows plan is not very far behind but its self-invested personal pension feature does not look very streamlined. It is almost as if it was added on as an afterthought. The Winterthur plan seems much more focused on the Sipp side of things."
Rawnsley says: "Eagle Star has committed a great deal of resources to launching into this market and have worked closely with IFAs on product design. Its marketing has been high-profile, with a series of roadshows nationally as well as providing local branch and consultant support. I would expect it to achieve a fairly healthy market share."
Looking at the investment opportunities that each plan provides, Sanders says all three offer a wide range of investment choice.
Eager says: "Winterthur has three options called pre-selected, collectives and full range. The investor is asked to tick one option only. Its pre-selected funds are very wide-ranging, including the util isation of fund managers such as Fidelity, Morgan Grenfell and Credit Suisse as well as a managed fund and an equity fund both managed by Schroder. Obviously, both Scottish Widows and Eagle Star have full self-investment available but only after minimal insured contributions of £50,000 and £100,000 respectively."
Bottriell describes how Eagle Star has a choice of up to 12 of its own funds, of which six can be invested in at anytime, while Scottish Widows has three fewer, offering nine funds as part of its insured plan.
He adds: "The Winterthur plan has a very wide investment choice, with a large spread of internal and external funds on the menu. The ability to go 100 per cent self- invested gives the plan almost unlimited investment scope."
Turning to Eagle Star's minimum investment, Bottreill says: "Eagle Star's is too high at £100,000 after tax-free cash compared with Scottish Widows' £50,000 including tax-free cash and Winterthur's no minimum. I can understand why it sets a high minimum as it wants to attract the higher-net-worth client as well as the more sophisticated.
"However, a drawdown or phased plan can be excellent advice in certain circumstances for more modest sums. For example, single lives, impaired lives and homosexual couples will always be likely to be attracted to a drawdown plan rather than a conventional annuity."
Rawnsley also highlights Scottish Widows' minimum investment value. He points out that its minimum is £50,000 but explains that this can include tax-free cash and, as a result, the minimum may well be under £40,000.
There is a broad range of opinion from the panel on the main useful features. Bottriell highlights the range of annuity options available under the Scottish Widows plan, which includes unitised and with- profits as well as conventional annuities.
Eager says of the Eagle Star plan: "Threadneedle's investment management capabilities and James Hay's administration services are both strong points. For example, Threadneedle is the seventh-biggest fund manager in the UK and has in excess of £35bn under management. James Hay has £750m under management and since its formation in 1979 has become one of the most respected names in small self-administered schemes and Sipp administration."
Eager also highlights how some of the fees are waived for Eagle Star's insured funds for the first 10 years.
Sanders sees Eagle Star's plan literature as a strong feature. He says: "The single pages which feature: Why Eagle Star? and a Sipp with no fees are very informative and gives a host of information which whets the appetite before one gets into the heavier documents enclosed in the package." He adds that both Winterthur and Scottish Widows products are very well presented.
Looking at the plans' structure, the panel generally agree that Eagle Star plan provides a great deal of flexibility.
Rawnsley says: "The Eagle Star plan is extremely flexible in terms of the minimum initial and additional investments, as well as the charging structure, which is transparent and flexible."
Bottriel says: "It is everything you would expect of such a plan. The flexibility on the whole is very comprehensive, although I wonder whether just 1,000 segments will be sufficient. In a large complex case more segments might be suited to deliver a client's precise income requirements. However, Scottish Widows is also limited to 1,000 segments and the Winter thur literature makes no reference to it."
Eager comments how the charges and the availability of two different commission structures provide additional flexibility under the Eagle Star plan.
Looking in more detail at the charges of the three plans, Rawnsley says: "Due to the complex nature of drawdown plans, the charging structures are relatively complex, with all three offering alternative charging bases dependent upon the level of fee or commission selected.
"If the IFA is prepared to sacrifice commission or indeed work on a fee basis, the plan charges and early ret irement penalties under the Eagle Star plan are extremely competitive."
Bottriell suggests that all the plans' charges are of a similar nature. However, he says: "Because Eagle Star offers to waive them for the first 10 years, it makes it by far the better value."
Sanders says: "The charges for all three contracts reviewed seem high but that is the nature of the beast."
Turning to the main drawbacks of the Eagle Star plan compared with the other two, Bottriell highlights how the plan cannot accept protected rights and that the minimum contribution is too high.
However, Sanders says: "I do not think that there are any drawbacks for the right cli ent in any of the products reviewed."
With regard to the companies' reputation in the market, the panel express a wide difference of opinion. Bottriell suggests that Eagle Star has the highest level of awareness among the public followed by Scottish Widows although he concedes that all three are relatively new in the drawdown market.
Sanders and Eager believe that all three have similar reputations. Sanders says: "Eagle Star never quite make it in the premier league.
"Winterthur has a good steady reputation but does not have the flair, performance and products to consistently make the top grade. Scottish Widows relies on its steady plodding and Scottish reputation too much. It is time for it to get into the 20th Century in 1998."
In contrast, Rawnsley says: "Scottish Widows has the highest profile in the pension market, Eagle Star has not been considered a major player but has committed considerable effort and resources to establishing itself at the forefront of the drawdown market. Winterthur has established itself as a niche player in the pension market through its self-invested pension plans and its drawdown.
Eager says: "There is no doubt that Eagle Star's product is both attractively packaged and competitive."
FLEXIBLE DRAWDOWN PLAN
Type: Flexible plan providing the option of a conventional annuity, phased annuity purchase or income drawdown on retirement.
Minimum premium: £100,000.
Investment choice: Full range of Eagle Star funds and investments through James Hay self-invested personal pension.
Administrator: James Hay Pension Trustees.
Allocation rates: Fee-based plans 100 per cent, commission-based plans 97 per cent.
Charges: Fee-based plans annual 0.675 per cent, commission-based plans annual 0.9 per cent.
Commission: Up to 5 per cent.
Tel: 0345 554444.
INCOME DRAWDOWN PLAN
Type: A flexible plan which is part of Scottish Widows Retirement Options offering a range of options, including conventional annuities, phased retirement and income drawdown.
Minimum premium: £50,000.
Investment choice: Nine Scottish Widows insured funds and a wider investment choice as part of a Sipp.
Administrator: Scottish Widows for drawdown and personal pension management if a Sipp is selected.
Allocation rates: £50,000-£74,999 – 97 per cent, £75,000-£99,999 – 98 per cent, £100,000-£249,000
– 99 per cent, £250,000-£499,999 – 99.25 per cent, £500,000-£999,000 – 99.5 per cent, £1,000,000-plus – 99.75 per cent.
Charges: Initial 5 per cent, annual 0.875 per cent.
Commission: Full commission menu available up to 5.4 per cent initial plus up to 1 per cent renewal.
Tel: 0131-655 7154.
PENSION INCOME PORTFOLIO
Type: Flexible plan with a clear and transparent charging structure offering drawdown from a comprehensive range of investments.
Minimum premium: None.
Investment choice: Choice of three levels. Level one includes all Winterthur funds and a range of linked funds, level two includes wide range of collective investments such as unit trusts and investments trusts, level three offers a full investment range.
Administrator: Internally administered.
Allocation rate: 100 per cent.
Charges: Dependent on level. Level one – initial £100, annual £100 plus 1 per cent of investment under £100,000. Level two – initial £430, annual £215, 0.25 per cent fund-related charge. Level three – initial £620, annual £355 plus 0.25 per cent fund related charge or stockbroker fee.
Commission: Fully negotiable.
Tel: 01256 798584.
Gary Bottriell, director, Lewis & Co,
Richard Eager, technical & training director, The M&E Network,
Gary Rawnsley, director, Bartlett Life & Pensions,
Nigel Sanders, managing director, Choice Investment Services.