Financial watchdogs appear unconcerned about the extra costs paid by hapless investors who take out personal pensions.

The latest report from the Personal Investment Authority, the front-line regulator, describes the charges on products sold by salesmen (as opposed to those bought off the page) as the "price of advice". It differentiates this from commission levels earned by the salespeople, which it calls the "cost of advice".

About two-thirds of the total bill to pension companies of the policies they sell come from "distribution costs" - that is, commissions to their salesmen/ advisers and on marketing expenses. Are the regulators deluding themselves (or others) by calling the cost of chasing down clients, known in the trade as "prospecting", and of completing sales as the "price of advice"?

In April last year, a joint investigation between The Independent and the World in Action television programme suggested that sales-patter rather than advice dominated, as far as many salespeople were concerned. A 50 per cent hike in commissions paid to salespeople reflected a battle by companies to secure distribution rather than better advice.

More recently, leading providers, in recognition of the need to cut charges for better informed clients, have offered independent financial advisers (IFAs) a "menu approach".

They give IFAs the choice between their "usual" plan with a high upfront commission (which appears in industry surveys) and a lower-charge plan with a lower commission spread over several years.

Many, if not most, IFAs stick with the usual plan as they would have cash flow problems if they abandoned up-front commissions. But others are taking the flatter commissions and switching to the more competitive products, with charges much in line with our benchmark product. Can anyone call the extra charges in the less-competitive usual products the "cost of advice"?

Another criticism of the regulators is their profligacy with public money. The recent study by Business Strategies, a consultancy acting for Direct Line, the telephone financial services provider, showed that the Treasury was spending pounds 300m a year in tax relief for pension plans.

The study estimated that with about 1 million people taking out plans each year, and with over 300,000 of them lapsing within three years, some pounds 100m a year of tax relief is "wasted" on products that will deliver poor or even non-existent payouts at retirement.

In fact, much of this tax relief is in effect passed on from losing planholders to the pension companies. As such, it must represent one of the most unjustified subsidies of an industry that has ever been given. Are any Parliamentary watchdogs taking note?

John Chapman

The Independent has produced a 'Guide to Direct Pensions', written by Nic Cicutti, its personal finance editor. The 26-page guide, sponsored by Eagle Star, a provider of cheap pensions by phone, covers a wide range of topics linked to retirement planning. It is available by calling 0800 776666. Or check the coupon on page 4.