The Witan investment trust is now available within a pension wrapper, the Witan simple contribution pension.
Looking at the pension's suitability to the market, Bumford says: “Few mainstream providers have yet to forge external fund links with the investment trust sector. This new contract will provide easy access to a generalist investment trust.”
Leonard says: “As the scheme only accepts contributions up to £3,600, it is really aiming for the non-workers and children's market.” Pack says: “It fits very well. It is a giant name entering a very confused market of 1 per cent providers, with many threatening to leave the marketplace.”
Identifying potential clients for the product, Leonard says: “The client that this will appeal to is likely to be a little more sophisticated with a slightly higher risk profile, probably someone who arranges their own investments. The fund is probably more useful for grandchildren rather than grandparents as there is just the one equity-linked fund available.”
Pack says: “Children and the self-employed or anyone with no employer's contribution.” Bumford says: “Generalist investment trusts such as Witan are ideally suited as a long-term core holding within most pension portfolios. However, this new product will be of particular interest to those effecting pension provision for children or for non-working spouses.”
Assessing the pension's marketing potential, Pack suggests opportunities will be limited for IFAs because commission is not available.
Bumford says: “This plan will allow advisers to offer wider investment options when using the new eligibility and concurrency rules to enhance pension provision for non-earners or as an alternative to additional voluntary contributions.”
Leonard says: “The product has probably missed the main thrust of investors taking advantage of the new £3,600 rules and is most likely to be sold off the page.”
Highlighting the main useful features of the product, Bumford says: “The main feature of this product is providing access to a generalist investment trust with a cost structure broadly comparable with that of the stakeholder regime.” Pack says: “It is a very simple contract which anyone can understand.”
Leonard says: “It is a relatively simple structure although anybody attempting to do anything other than make a contribution within the same tax year could well struggle with a multiplicity of forms and no advice.”
Discussing the investment option, Leonard says: “As this is a linkage to one fund, there are not really any investment options available. The underlying fund is internationally biased but has adopted an asset allocation similar to most managed UK funds. However, Witan is slightly overweight in North America in comparison with the competitors for this type of business.”
Bumford says: “Access to only one investment fund is unlikely to be a major issue for investors making small contributions. For those who make the maximum payment, this may become a concern in the long term, when fund values build up and greater diversification may be needed. The absence of a deposit facility which may be used as a holding position or to consolidate values prior to retirement, is also disappointing.”
Pack thinks investing globally through the investment trust is ideal for long-term investment.
Turning to the drawbacks of the product, Leonard says: “It is a particularly inflexible product for anybody wanting to actively manage or diversify their pension arrangements. It is especially restricted as it has no cash fund option.”
Bumford says: “The main disadvantages of this contract are the single investment opt-ion and the lack of flexibility for regular contributions. The absence of commission payments may also be a concern to commission-based advisers.” Pack says the pension benefits require a transfer out.
Discussing the pension's flexibility, Leonard says: “As there is very little flexibility, the client needs to be comfortable with long-term equity exposure.” Bumford says: “It offers little flexibility. The single investment option gives no opportunity to rebalance the portfolio. The direct debit facility for monthly contributions of £234 only sends out a message that this contract is aimed at high-net-worth clients whereas, in practice, it may be equally relevant to others who want to make lower contributions on a regular basis.” Pack says: “The flexibility is ideal for the present pension climate.”
Looking at the company's reputation, Leonard and Pack say it is excellent. Bumford says: “Witan's long-standing presence in the investment arena is clearly consistent with the long-term nature of pension provision. Most advisers will feel comfortable in recommending the Witan trust, in particular as a core equity holding within their client's pension portfolio.”
Moving on to Witan's past performance, Pack thinks it is very good. Bumford says: “Witan's performance has fluctuated within its peer group. However, the large number of holdings and geographical allocation should always provide satisfactory returns for those who agree that equities will outperform other asset types over the long term.”
Leonard says: “Witan has produced consistent and acceptable past performance but has not sparkled in comparison with it its peers. The short-term performance has been below the average international unit trust over the last 12 months. The other factor to bear in mind is that the investment trust does not necessarily trade at asset value and the discount has drifted out to around 14 per cent. This could reflect an opportunity to acquire a well-run trust at what has historically been a large discount.”
Considering possible competitors for the product, Pack suggests any stakeholder-type contract. Leonard says: “The main competition for this type of product would currently be insurance company schemes.”
Bumford says: “The main competition for this product are stakeholder and personal pensions that operate within the 1 per cent cap. These plans offer wider investment options and greater flexibility with regard to frequency and amount of contributions. Other areas of competition will include investment trusts used as savings vehicles for children and arranged outside of the pensions wrapper.”
Assessing the charges Bumford says: “Investment trusts provide a charging structure that competes strongly with most other pension and collective investment schemes. If commission is discounted under stakeholder plans, the Witan contract appears to offer little advantage, except perhaps over the very long term. Due to the transaction-based cost structure, transfer values in the early years will be lower than those of a nil-commission stakeholder plan.”
Leonard says: “While the charges are fair, it is a complex charging structure, with individual fees for a large number of potential actions being undertaken by the scheme managers. Bearing in mind that this is a nil-commission product, a red-uction in yield of 6.2 per cent is nothing special compared with Standard Life on nil-commission terms. This has a reduction in yield of 6.3 per cent for unit-linked or 6.9 per cent for with-profit plans.”
Looking at the product literature, Pack thinks it is very good. Bumford says: “This gives a fairly straightforward explanation of the contract details and should be adequate for most investors.” Leonard says: “The product literature is adequate but is fairly unexciting.”
Summing up, Leonard says: “It is encouraging to see other investment managers making moves into an area previously dominated by insurance companies. But the relatively small investments leave the plan as a fairly average competitor.”
John Bumford, client manager, Gee & Company,
Brian Pack, principal, Brian Pack Financial Services,
Bob Leonard, partner, Advisory & Brokerage Services