Millions face shrinking pensions

MILLIONS of people are holding pension policies worth less than the amount they invested, finance experts have warned.

Rather than accumulating a healthy nestegg for their old age, savers who took out unit-linked personal pensions around ten years ago have lost money.

The packages, which are tied to stock market performance, have been ravaged by the slump in share values, which hit their lowest point last March.

On average, a contribution of £12,000 over the decade will currently yield just £11,950. The figures compare with a return of up to £17,821 on an investment of £10,000 over ten years on a with-profits policy. These deals also invest in shares but insure against bad years by banking the profits from good ones.

A total of 6.3m people in the UK have unit-linked plans, accounting for almost two-thirds of all personal pension holders. According to investment experts Moneyfacts, no unit-linked plans have delivered positive returns over the past five years-while the average policy has grown by only 18% over the past 15 years.

Even the best-performing plan, held by Abbey National for Intermediaries, returned only £12,016 on a £10,000 investment over ten years, a survey shows.

Most larger insurance firms have generated losses on unit-linked plans. Policies are worth up to 10% less than the original contribution.

Axa and Britannic were ranked the worst performers in the survey.

Malcolm Tarling, of the Association of British Insurers, said: 'Unit-linked products are a rollercoaster ride for policyholders. Any product linked to the stock market is going to reflect movement and although the market is recovering, it hit a low earlier this year. People need to be aware they are taking a gamble with these policies.'

Steve Muir, of Axa, said: 'All the major insurers are in the same boat. This is purely a reflection of the investment climate we have been in for the past three years. These policies will produce valuable returns over long periods but at the moment, the market is low.

'The longer you have to go before you retire, the more chance you have of recovering any losses.'

He said anyone who is preparing to retire should delay cashing in their policy or consider switching it within the same firm. But he warned that policyholders who try to move their investment-between firms could face a penalty, depending on their plan.

One victim of the poor performance is newspaper delivery man Brian Domone.

For 22 years he put £62 a month into a unit-linked pension fund, assuming the cash would be enough to take care of him and his wife Joyce.

When he retired at 65 in 2000, his Allied Dunbar policy was worth £52,100. Mr Domone delayed cashing it in - but the decision cost him dearly.

Within a year more than £6,000 had been shaved off his savings. When it showed some signs of recovery in June 2001, Mr Domone said he wrote to Allied Dunbar asking them to move his investment into a fixed interest deposit fund to protect it from any more losses.

Zurich Financial Services, which owns Allied Dunbar, said it never received his request and the fund continued to plummet in value. It is now worth £32,000.

Mr Domone, from Bury St Edmonds, Suffolk, said: 'Allied Dunbar said it never received the form. If the company had done what I asked for, it would never have lost all this money.'