Flexible Drawdown Plan
Type: Hybrid Sipp
Minimum investment: £150,000
Investment choice: Global select growth, environmental opportunities, equity managed, European growth, Japan growth, managed, American growth, Asia growth, property, secure, UK equity, UK preferences and fixed interest, long dated gilt, UK index tracker, unitised with-profits, managed income, cautious managed, UK corporate bond, UK money securities, sterling bond, balanced managed, adventurous managed, global bond, UK equity income, UK monthly income, UK growth and income, UK growth, American select growth, American smaller companies, European select growth, European smaller companies, Japan smaller companies, Far East and Japan growth, Latin American growth, UK select growth, UK smaller companies, Baring managed, Deutsche managed, Fidelity managed, Foreign & Colonial managed, Framlington managed, Gartmore managed, Henderson managed, HSBC managed, Lazard managed, Merrill Lynch managed, Perpetual managed, Schroder managed.
Administrator: James Hay Pension Trustees
Charges: Initial option C 1.05% a month for the first five years, annual option B initial and fund based renewal commission 0.65%, option B nil commission 0.9%, option A, C 0.9%
Allocation rates: Option A and B initial and fund based renewal commission 97%, option B nil commission 100%, option C 102%
Commission: Initial option A 5%, option B and C 3%, renewal up to 0.75%
Tel: 0500 546546
Investment options 6.0
Company's reputation 6.0
Past performance 6.5
Product literature 5.8
Bruce Coverley, Director of financial planning, Spectrum Financial Services, Barry Laymond, Senior practitioner, Barry Laymond Financial Services, Jeremy Parrott, Managing director, Birnbeck Finance, David Wingar, Partner, Courts Independent Financial Management.
Eagle Star's flexible drawdown plan is a hybrid self-invested personal pension (Sipp) which offers investment in 36 Eagle Star funds and 12 external funds.
Commenting on how the plan fits into the market, Wingar thinks it is an expanding market but the initial investment at £150,000 is high compared to most competitors, which are £100,000. Coverley says: "It is a revamp of an existing plan with a longer track record than some recent providers." Parrot says: "The plan fits the market well, although I could not see anything that particularly sets it apart from an already well represented sector." Laymond feels it is just another entrant to a specialised market and in the end, the market place will have more product providers than the market can sustain.
Considering the type of client for whom the plan is suitable, Wingar says: "Those not wishing to purchase a conventional annuity." Parrott thinks it best suits those with sizeable pension funds who wish to exercise control over their investment and take advantage of the flexibility available when taking benefits. It will tend to appeal to the more sophisticated investor.
Turning to the marketing opportunities offered by the plan, Parrott says: "It gives another option when discussing and recommending providers, although this particular market is pretty well covered by most leading providers. In this context, marketing opportunities are likely to be fairly limited." Wingar agrees with this. Laymond says: "It is suitable for those seeking flexibility in managing their total pension pot." Coverley says: "It is useful in the reconstruction of SSAS and Sipp business, drawdown transfer business and someone wanting a free Sipp for 10 years subject to £150,000 being held with Eagle Star."
As for the main useful features and strong points of the plan, Parrott says: "The plan uses a leading Sipp provider in James Hay, coupled with a respected investment house in Threadneedle. The external fund links are also from well-regarded investment houses. Flexibility is good, although no better than most other Sipps. Commission and allocation options will appeal to some." Coverley says: "Clear terms, no withdrawal restrictions, the range of 48 funds of which 20 can be held at any one time and the increased allocation for younger lives and larger amounts invested." Wingar says: "Access to the Sipp via James Hay at no charge if Eagle Star receives £150,000 into its own funds." Laymond likes the availability of self-investment, flexibility of death benefits and the ability to combine phased annuity purchase and income drawdown.
Looking at the range of investment options, Wingar says: "Eagle Star has a comprehensive range plus access to the market place through the Sipp." Parrott feels they are generally good funds to satisfy a reasonable investment spread. He adds: "I do, though, have reservations with most provider Sipps - why not just go with the administrator and have access to the whole investment market? Coverley says he would like to choose funds from other investment companies not just the funds selected. Laymond says: "While covering most sectors, 36 of the 48 funds are managed by Threadneedle and 12 are from other fund managers."
The plan's disadvantages come up for discussion next. Laymond says:
"Once the fund is invested in the plan, the client cannot change their mind, the market value reduction factor may be applied if switched from the with-profits fund and the loss of all defined benefits if the investor is leaving an employer scheme." Parrott says: "The costs are not as low as they first appear. While Eagle Star will cover James Hay's charges, investors must commit substantial amounts to Eagle Star to qualify and these funds have a range of charges associated with them. I would rather pay the pensioner trustee fees and have total investment flexibility which can be negotiated with fund managers." Wingar and Coverley say the plan's £150,000 minimum investment and the fact there is no protected rights element, is a drawback. Coverley adds: "Option C is too expensive."
The panel next comment on the flexibility offered by the plan. Wingar says: "Excellent, very comprehensive." Coverley says: "It is a clean contract under options A and B and you can mix and match between full and phased drawdown. Specific income amounts can be taken from specific funds if required and the timing can be varied." Parrott thinks the plan covers all the areas he would expect with a Sipp. His main reservation is with the amount Eagle Star wants invested in its funds. Laymond sees it as no more flexible than competitive plans.
Turning next to Eagle Star's reputation, Parrott feels that it has sought to establish a reputation as a pensions provider, but there are better providers available. Wingar says: "Good. It is now Zurich Group's flagship pension provider." Coverley thinks it has a good reputation for drawdown and trustee investment plan business, but public awareness of Eagle Star as pension provider is not great. Laymond feels that it is not a provider renowned as specialists in this type of pension business.
Commenting on Eagle Star's past performance record, Parrott says: "It is mixed. Some of the Threadneedle funds are excellent, although they can be accessed via any Sipp. The with-profits performance is something of a mystery to me. It operates a number of such funds - some have good performance while others look poor." Laymond says: "Threadneedle, which manages Eagle Star's funds, has performed well over the last five years but the real test will be performance for five years from September 2001." Wingar reckons it is above average. Coverley says: "It is consistent. Threadneedle's imput and Eagle Star's own management is better than average."
The panel assesses the competition next. Parrott says: "James Hay operates a number of similar Sipps through quite a range of providers and these will certainly compete. Mainly though, I would see non-provider Sipps as the main competition. They have more flexibility on investments, which I find is the main attraction to clients." The remaining panel members mention Standard Life, James Hay, Scottish Equitable, Winterthur, GE Life (formerly National Mutual), Legal & General and Sun Life.
Turning to the charges, Parrott thinks they are fair and reasonable for a hybrid Sipp product. Coverley says: "Yes under options A and B." Wingar agrees they are fair and reasonable, but points out investors need to place £150,000 with Eagle Star to avoid James Hay's charges.
Commenting on the commission, Parrott says: "There is quite a choice here, but it inevitably impacts on overall costs. I personally feel that these products are better suited to fee-based advice. There is an option for nil commission, but certain strings are attached." Wingar and Coverley also think commission is acceptable. However, Laymond disagrees, saying the commission options are not as good as those available from competitors.
Looking at the product literature, Laymond says: "Bland but nevertheless clear and concise in detail. Why do product providers produce so many books to cover one product? While much detail is necessary, they should provide a more simplistic approach to brochures." Parrott thinks there is a lot of technical data which is necessary, but it is set out quite plainly. Wingar simply says: "Excellent." Coverley likes the improved transfer application and the professional briefing CD ROM.