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Sipp mates

Eagle Star&#39s Flexible Drawdown Plan, in conjunction with James Hay Pension Trustees, aims to offer a flexible charging structure to meet the needs both of commission and fee-based IFAs.

Our panel look first at how it fits into the market. Tinslay says: "The plan offers a good self-invested facility and is simple in structure. Eagle Star has provided a good foundation from which a good post-retirement pension strategy can be built.

"However, the policy does not provide all the necessary features required to make a competitive post-retirement pension."

Patterson says the plan adds a further option for advisers who are not confident about going down the full self-invested personal pension route. "The plan at least allows for a degree of diversification by being a Sipp hybrid but, like other companies offering this structure, it merely reflects the life company&#39s recognition of a need for the Sipp facility," he says.

Robinson believes that the plan should have a wide appeal.

Commenting on client suitability, Lakey says: "This is for those who wish to retain investment choice while availing themselves of the flexibility of drawdown."

Robinson thinks the plan is suitable for high-net-worth individuals with a minimum fund of £250,000. He also highlights early retirees who want access to the tax-free lump sum with minimum annual drawdown.

Tinslay doubts that the plan has any marketing opportunities but Robinson says: "This would be attractive for someone wishing to take the self-invested route with 10 years to go to age 75. Also, for an individual who wants a mix of with-profits, collectives and self-investments."

Patterson says: "Other than a clever marketing ploy of offering free administration and nil initial and annual fees on the Sipp, the plan does not appear to offer any unique sales features to make it stand out from the crowd."

Lakey cites the plan&#39s main useful features as being Eagle Star&#39s name, James Hay&#39s reputation and the commission and allocation flexibility.

Tinslay says: "The main useful features offered are the two-tier commission basis, the automatic income increase facility, the ability to take income from a mixture of investments or just one and that Eagle Star will pay the establishment and most of the first 10 years&#39 administration fees."

Patterson says: "The six free switches each year will obviously help when an active investment strategy is adop ted. The option to select which funds income is taken from is essential."

Lakey describes the flexibility as very comprehensive. He says: "This is typical of the all-singing, all-dancing plans released since early 1996."

Robinson says: "There is good flexibility between phased annuity and income drawdown." However, Tinslay rec- kons that the flexibility is industry-standard.

Patterson says: "The plan works in marketing terms only if the first £100,000 is inves ted with Eagle Star&#39s own funds, which can be very restrictive."

Commenting in more detail on the internal investment options available, Patterson says: "Apart from Eagle Star giving its funds a risk-rating, there appears to have been no attempt to offer funds which have any features that are particularly helpful to drawdown planning."

Robinson thinks that the investment options are restrictive, adding: "The James Hay self-invested route would have to be used."

However, Lakey says: "The investment options are wide-ranging. Against the trend, Eagle Star is allowing investment into the with-profits fund."

Analysing the charging structure, Patterson says: "Is this an attempt to simplify the menu approach or an unnecessary complication? The annual management charges are low, which should make a good sales feature, but flexible pensions demand much more than low costs to work properly. The investment strategy is far more important."

Lakey believes that the two charging structures on offer are initially confusing. He says: "Obviously, this is trying to appease commission and fee-based advisers." Robinson simply calls the charging structure sensible.

Commenting on Eagle Star&#39s reputation in the market, Patterson says: "The company has worked hard in rec ent years to build a reputat ion as a mainstream pension player but still has some way to go to fulfil this objective."

Lakey says: "Eagle Star seems to have lost its way over the past 10 years but recently it has been taking steps to restore its previous position."

Turning to the company&#39s per formance record, Tinslay comments: "Eagle Star&#39s investment performance illustrates more of a pre-retirement strategy rather than post-retirement. Most standard deviation tests completed illustrate that the risk/reward ratio is not suitable for single-premium post-retirement investments. One would hope that Threadneedle&#39s advanced performance measurement and portfolio analysis techniques will work."

Patterson says: "The company has a fairly good record in UK equities but managed fund performances have been let down by poor returns elsewhere, particularly in overseas markets.

"The case for having separate fund management through Threadneedle has yet to be proven."

Looking at the plan&#39s disadvantages, Robinson thinks that the six free switches a year are not sufficient for a big fund.

Tinslay says: "Eagle Star offers very few of the facilities that should be included within a post-retirement pension, for example, tax mitigation and testamentary trust facilities. In addition, it is not providing the investment facilities necessary to ensure a successful post-retirement investment."

Patterson highlights the main disadvantage as the requirement to hold a significant amount in Eagle Star&#39s own funds.

All the panel agree that the charges are fair. Lakey says: "The waived charges for the Sipp make an attractive discussion point."

Patterson says: "In general, this looks like a very competitively priced plan, particularly at older ages."

Robinson calls the product literature easy to read. However, Lakey feels that it is too comprehensive and daunting for many clients.

Summing up, Patterson says: "As hybrid Sipps go, this is a fairly good effort but it still falls well short of the pure Sipp arrangement."


Paul Tinslay, consultant, Carrington Investment Consultants, Anton Robinson, director, Christchurch Investment Management, Alan Lakey, senior partner, Highclere Financial Services, Steve Patterson, managing director, Intelligent Pensions.


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