Creating a redical new pension
An Eagle Star case study

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Page 4: Creating a new pension

Eagle Star 3 Image 3In January 1997, Eagle Star, one of Britain’s leading life and general insurers launched the UK's first personal pension with a money-back guarantee. The Eagle Star Direct pension - believed to have the simplest and lowest charges on the market - signalled a major challenge to other firms offering pensions to the public directly over the phone (such as Virgin and Scottish Widows). In creating the new pension scheme, Ian Owen, the Managing Director of Eagle Star Life UK, recognised that Eagle Star had to position itself as being radically different from other life companies, if it was to stand out in the industry. The company therefore prepared the ground for its new products by openly and honestly acknowledging the industry’s failings, responding to consumer and media concerns and presenting itself as a genuinely fresh voice in the industry.

Eagle Star’s guarantee means that customers who wish to change their minds over the first two years, for whatever reason, will be reimbursed. All fees and charges will be refunded and the current market value of the pension will be transferred to another pension provider. Eagle Star decided to create this new product because: ‘The personal pensions market has for too long been haunted by the dual problem of unclear charges and a high drop-out rate in the early years. We are tackling these difficulties head on and putting the consumer firmly in charge. Our guarantee, together with the freedom to suspend contributions without penalty, means that early surrender problems should be a thing of the past.’

This radical move was designed to maximise consumer confidence in the product. In the early part of the 1990’s, there had been some criticism of private pension scheme selling. A number of customers felt they were being ‘left in the dark’ about the extent of their financial obligations, found that they were paying in more than they had expected and that the pensions they had bought did not always match their expectations. This led to a number of buyers dropping out of pension schemes after quite a short period of time. This was not good for the companies offering pensions, it was not good for the customers and it was not good for the industry. Eagle Star therefore carried out an extensive programme of market research, listening to customers to find out what benefits they were looking for.

Customers wanted:

  • lower costs
  • a money back guarantee
  • investment choice
  • protection if they lost their jobs
  • expert advice.

Lower costs

Purchasing financial services over the phone has become increasing popular over the last few years. Telephone banking, insurance and pensions are now an established way of dealing with these products in the United Kingdom. Not only does this provide the customer with the convenience and comfort of carrying out transactions from their own homes, it also often offers considerable saving of cost and time. Organisations offering straightforward financial services over the telephone do not need nation-wide branches with thousands of counter staff. By cutting costs, the provider is able to offer the customer better quality and value for money.

Eagle Star’s charges are simple and transparent: a £2 monthly fee and 1% annual management charge without a financial penalty on customers that surrender their pension schemes.

Money-back guarantee

Eagle Star promises investors that all charges, including any annual management fees will be returned if, for whatever reason, they switch to another pension provider in the first two years.

Investment choice

Pension funds operate by investing the premiums that they receive from the pension holders in a variety of shares and property and by lending money to the government. Eagle Star has an established record in re-investing money deposited with them. Some of the money is placed in secure fixed interest investments, (for example, with the UK government,) while other sums are invested in the UK and overseas companies with the potential for better returns.

Protection if jobs are lost

If a customer loses his or her job through illness or accident, he or she may find it impossible to keep up their pension contributions and retirement income may suffer. Eagle Star promises, at minimal cost, to maintain the payments for as long as the customer is out of work.

Expert advice

Some telephone-based operations do not offer their customers the choice of telephone based or face-to-face advice. Eagle Star believes that customers should be able to choose the circumstances in which they take advice, thus offering all its customers the option – without any obligation and at no extra cost – to deal directly by phone or to meet a fully qualified adviser face-to-face to discuss their needs and explain how the pension plan operates in practice. Eagle Star recognises that many consumers prefer to receive independent financial advice, rather than deal direct with a pensions company. For this reason, the company actively supports independent financial advisers (IFAs), who offer expert advice on pensions and other financial services from a wide range of companies. Eagle Star believes the consumer should be able to choose how they want to buy a pension, whether over the phone, face to face with an Eagle Star adviser, or through an IFA.

Eagle Star | Creating a redical new pension