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Fresh evidence confirms that private top-up pensions are poor performers

A FEW MONTHS ago, we published a front-page story in this section to the effect that the Personal Investment Authority, the financial watchdog, was preparing (no more than that) to investigate sales of privately-provided top-up pensions.

The story came at the same time as a report by the specialist magazine, Pensions Management, showed that private pension top-ups, called FSAVCs, delivered far worse returns than those made available to employees from their own employers and known as AVCs.

After the article appeared, I was deluged by letters and phone calls from readers, telling me of their experiences when they sought to increase their future retirement income. All sorts of spurious reasons were given by their financial advisers as to why they should opt for FSAVCs in preference to AVCs. Strangely, the most important reason - that an adviser stands to make many hundreds of pounds in commission by selling an inappropriate product - was never among those reasons.

At the same time, I received a handful of "more in sorrow than in anger" letters from advisers themselves. Some put forward cogent reasons why they had, in some individual cases, recommended FSAVCs. A few preferred to operate on the basis that if you insult a journalist the problem of mis-selling will go away.

This week another report on FSAVCs lands on my desk. It is from Bacon & Woodrow, the highly-respected firm of independent actuaries. It makes worrying reading: on average, in-house AVCs outperform their private counterparts by 10 to 15 per cent over 10 years. This, as Bacon & Woodrow note, is the equivalent of more than one year's premiums.

The report comments: "We believe further research is needed in relation to FSAVC sales. This should include a review of the providers' files to establish the reasons for members taking out FSAVCs, where these are seen to be inappropriate." In other words, Bacon & Woodrow is itself calling for an investigation which financial regulators have dithered over for years, since the possibility of massive mis-selling was first aired.

Another useful suggestion is that any person considering a top-up should be provided with comparisons of investment options and charges between their company-provided AVC and the privately-sold FSAVC.

A SOLICITOR I know is being sued by a large mortgage lender. The lender, a former building society, wants compensation for the fact that one of its borrowers defaulted on his mortgage and walked off owing tens of thousands of pounds.

The solicitor is alleged to have made a tiny error in the conveyancing process, where he was acting on behalf of both lender and borrower - one which, it should be stressed, had no impact whatsover on the default. The lender, of course, will accept no responsibility for its willingness to offer a dodgy prospect a 100 per cent mortgage during the early Nineties, when house prices were plummeting.

Similar stories form the background to a decision this week by the Law Society that its members should no longer act on behalf of both lenders and borrowers at the same time. This will make buying a house more costly. The next time mortgage lenders whinge about the housing recession, remember who is to blame.