THE first shots have been fired in the 1997 pensions war with the announcement this week by Ark Life that it has restructured the pricing of its personal pension plans.
Virtually all the pension companies are in the process of making some pricing adjustments, mainly due to the new commission charges that came into effect from January 1st on all regular premium plans. Instead of paying a 60 per cent initial commission on the first year's premiums plus renewal commission of 3 per cent per annum, new pension contributors will pay 50 per cent initial commission plus an annual renewal of 4 per cent.
The long term effect is the same, but represents better short term value for people who are nearing retirement when they purchase a plan or who have to stop their contributions prematurely.
Ark Life is in the enviable position of not paying conventional commissions, and has therefore been able to further reduce its costs to enhance competitiveness. Ark Life has done this by reducing its nil allocation period (NAP) the period during which contributions are not invested in order to pay initial charges and commissions.
The NAP has been reduced from the standard 15 months to a maximum of six months in the case of people making contributions of less than £150 a month. For contributions of £150 to £299 a month the NAP is just four months maximum while contributions of £300 or more a month will be NAP free with a full allocation of monies directly to investment funds.
Annual management charges rise from a half per cent to three quarters of a per cent and the 5 per cent bid offer spread is reinstated. But while Ark's old pension fund was fairly unique in that it had no bid offer spread and relatively low management charges, the company insists that this new pricing structure will improve the fund's retirement values.
Ark expects the independent pension statistics company PENEX to confirm in the next few weeks its assertion that this new pension will push Ark up to the top position for higher value contributions of £300 and £600 a month and to second position for £100 and £150 level and indexed contributions.
Only Equitable Life, with its nil commission and low management charge structure beats Ark Life on the lower contribution amounts claims Ark. (The example used is a 35 year old male, retiring at age 60).
Ark's new pension plans include what are becoming increasingly standard conditions: the right to stop and start contributions without penalty; the right to seek open market quotations for retirement annuities; life assurance options, etc. Unusually, it is offering the investment option of a pension tracker bond, a three to five year investment that have been approved by the Revenue Commissioners. At the end of the three or five year period the policy holder can opt to take another tracker option or switch to Ark's pension managed fund or its pension assured fund.
Ark, like Lifetime the life assurance division of Bank of Ireland, sells directly to the public via AIB's bank branches. Because it does not pay conventional commissions, business does not tend to be referred by brokers. Anyone interested in an Ark pension should therefore carefully read the policy documents and compare its fund management against others in the market. A fee charging financial adviser will be well placed to provide an independent assessment of this and other pension products.
