By Sarah Toyne BBC News Online personal finance reporter

Insurers are gradually pulling out of top-up pension schemes, which are used by people to boost their income in retirement, according to research by BBC News Online.

We have never been fans. We have seen too many problems and complaints

Des Hamilton of OPAS

A growing list of insurers have closed free standing additional voluntary contribution schemes (FSAVCs) to new customers over the last few years, but the trend has been largely unnoticed.

Standard Life announced last week that it would close its FSAVC scheme to new members from July, due to declining demand and the introduction of stakeholder pensions.

New contracts

1997 - 88,000 1998 - 70,000 1999 - 36,000 2000 - 14,000 2001 - 8,000 Source: Association of British Insurers

It joins other insurance companies, such as Prudential, Royal London, Scottish Widows, Royal & Sun Alliance, NPI, Pearl, NatWest Life, Canada Life and Axa Sun Life, who have already shut their FSAVC schemes to new business.

And others could follow suit. Norwich Union, one of the UK's largest insurers is reviewing the situation.

Top-up schemes

FSAVCS are a pension top-up policy which is taken out with an investment firm, and separate to an employer's pension scheme.

They are different to additional voluntary contributions (AVCs). This type of top-up policy is run by employers, and contributions are normally taken from pay.

Figures from the Association of British Insurers reveal that there has been a massive drop-off in their popularity over the last few years.

In 1997, for example, there were 88,000 new contracts, compared with only 8,000 in 2001.

The value of new premiums decreased from �111m to �20m in the same five year period.

Many insurers say that due to falling demand the cost of running the schemes has become unviable.

John Davies secretary to the Association of Chartered Certified Accountants Pension Committee described the closures as a "blow to choice".

Their demise

Insurers who have closed the schemes to new business said that declining interest in these schemes was largely down to stakeholder pensions, introduced in April 2001.

Total new money invested

1997 - �111m 1998 - �106m 1999 - �60m 2000 - �35m 2001 - �20m Source: Association of British Insurers

With a stakeholder you can take 25% of the fund as tax-free cash on retirement. With an FSAVC, the whole amount must be turned into an annuity.

With stakeholder you can draw the benefits at any time between 50 and 75, but FSAVCs are usually restricted the when you retire.

Since stakeholder pensions were introduced, members of occupational schemes can invest up to �3,600 a year in a stakeholder pension providing their income does not exceed �30,000.

The total amount that can be paid into a pension from all sources, including FSAVCs and AVCs, must not exceed 15% of income.

Iain Buckle, head of individual pensions at Norwich Union, said: "There would have to be a good reason for an adviser to be recommending an FSAVC over a stakeholder now."

The AVC market has also become more attractive to investors.

Occupational schemes have been obliged to offer an AVC scheme for many years. In fact, since 6 April 1988.

The introduction of stakeholder pensions, however, has pushed down costs in the AVC market.

Traditionally, FSAVC schemes offered much wider investment prospects than AVC schemes but with high administration charges.

Mr Davies, said: "I would not say that they are much better than AVCs, but they do have the potential to offer better investment choice, because individuals are not restricted to particular fund managers."

Bad press

Not all are mourning the demise of FSAVCs.

FSAVCs have received a bad press in recent years over allegations about how policies were sold.

The Financial Services Authority is looking at whether some people were wrongly advised to take out an FSAVC when they would have been better off joining their in-house AVC scheme.

They have also been criticised for high charges.

Des Hamilton of Opas, the pensions advisory service, said: "We have never been fans. We have seen too many problems and complaints relating to particularly charges and transfer penalties.

"People suddenly woke up years later to find that there was a better alternative that hadn't been pointed out to them."

Higher earners

Some companies feel that there is still a need to offer FSAVC schemes.

Scottish Equitable, which still offers FSAVCs, said it had no plans to pull out of the market for at least the next six months.

"The more choices available the more chance we have of closing this huge savings gap out there," a Scottish Equitable spokesman said.

"While there is still a demand we will carry on supplying it."