LIFE assurance savings policies, especially unit linked ones, have been widely criticised for their high charges and poor value, but one company, at least Ark Life has finally taken the plunge by introducing two new low cost, low tax products called the Personal Investment Plan and the Personal Equity Plan.
The names, PIP and PEP should not be confused with British PEPs, which are highly tax efficient investments, but they do share certain features, such as a lower charges structure. All up front charges commissions, set up fees which traditionally account for at least a full year's worth of contributions, have been removed from these new Ark Life products. Instead, charges are spread over the life of the product, 1.5 per cent annually in the case of the PIP, and 1.75 per cent in the case of the PEP and the traditional 5 per cent bid offer spread, the difference between the price at which units are bought and the price at which they are sold.
The significance of initial lower charges is that early encashment values are better immediately than most other life assurance savings plans, though a minimum five year saving period is recommended for the Personal Investment Plan. A managed fund the PIP requires a minimum monthly investment of £40 but you can increase your contributions in £20 increments without any extra charge (conventional plans would apply commissions and charges to any extra contributions), or you can add lump sums of £500 or more without any extra charge.
You can also take a "contribution holiday" without penalty or make withdrawals. The first withdrawal is free but subsequent ones will incur a £25 fee. Returns are tax paid at the standard 27 per cent rate.
The Personal Equity Plan (PEP) is also a managed fund investment but comes under the low tax conditions of special investment policies which require that at least 55 per cent of the fund is invested in Irish companies. The tax rate is just 10 per cent. You need to invest at least £100 a month in this PEP and the annual management charge is 1.75 per cent, as well as the once off 5 per cent bid offer spread.
The disappointing returns from savings plans much of it caused by high commissions and charges resulted in the virtual collapse of the market in the last few years. But long term equity investment is still highly desirable if the cost structure of the product is controlled. Ark Life, which has always had one of the lowest cost savings schemes on the market has thrown down the gauntlet with these new investment plans and it is only a matter of time before the other life assurers respond with low cost tracts of their own.
