The insurance industry has been so successful at hiding charges from the investor that a computer is needed just to work out the true cost of each contract. Illustrations as laid down by the Life Assurance and Unit Trust Regulatory Organisation (Lautro) assume that each company has identical costs. As a result they are useless to the consumer in distinguishing between different policies - a fact the industry itself now recognises.
The independent adviser Pensionline is seeking to get round this state of affairs by providing no-frills pension advice based on a computer database that compares the real effect of charges, as well as looking at managed fund performance for each company.
Commission on insurance products is paid at a standard Lautro rate plus an 'enhancement'. The total commission may be 130 per cent of the recommended Lautro amount, though some companies pay much more.
Pensionline will either refund half the standard Lautro rate or charge a flat pounds 245 fee and refund the whole Lautro commission, whichever is more favourable to the client.
Jon Minchin of Pensionline says his company earns around half the standard rate of commission under this system, and can afford to do so by offering a standardised, telephone-based service. Only 5 per cent of clients are interviewed face to face.
Conventional advisers say that time spent with the client in person is an essential part of the job. Tony Shepherd, of Tony Shepherd Associates, charges clients a fee of pounds 80 an hour, against which all commission is rebated. He finds that an apparently simple pensions advice case 'almost always ends up a much bigger job'. The central questions to ask are, 'what type of pension?', and 'do I need a pension at all?'
He quotes the example of a prison governor who came to him shortly before retirement. This client had recently taken out a large AVC pension plan on top of his pension, though as his job had always provided accommodation he had no property to live in on retirement. Instead of paying to boost an already generous index- linked pension, he should have been using his spare cash to buy a house.
Another problem is that people do not always know exactly what they already have. The adviser may need to see their documents in order to assess their existing provision.
Gillian Mainds, a pensions expert at the advisers Fiona Price & Partners, feels that there are many criteria to be taken into account when choosing a pension - soundness of the company, flexibility of the contract, investment performance and reliability of administration.
'It is easy to become so heavily biased towards charges that you are not looking at the contract,' she said. Some pension plans have no paid-up value at all for the first two years of contributions. Others make it easy to suspend payments temporarily if you are made redundant or stop work to have a family. She usually works on commission unless no product advice is given, when she will charge a fee.
Which companies do the advisers recommend? Ms Mainds mentions Scottish Equitable, Provident Mutual, Sun Life, and Skandia. On charges grounds she would avoid MI and Allied Dunbar. Mr Shepherd likes non-commission offices - Professional Life, Provident Life and Equitable Life.
The table shows the top 10 companies picked by the Pensionline computer for two different policy specifications, with the percentage by which the fund will be reduced as a result of charges and the performance of the group's managed fund over five years. The list will range through many different permutations, depending on contribution levels and investment terms.
For single contributions, Scottish Widows comes out well over both long and short terms. NPI is high on the list for small contributions over short terms. For large, long-term regular premiums Clerical Medical looks good. For small, short-term contributions Scottish Amicable gives good value - and it appears to give good value in Pensionline's analysis over a wide range of specifications.
At the bottom of the rankings, Canterbury Life's charges will reduce your pension fund by 42 per cent over 25 years. In general, Mr Minchin said, competition has brought down charges in offices that deal mainly through brokers.
Those that do not do much broker business - for example Prudential, the Co-op, Allied Dunbar and the banks - tend to have higher charges. One company quoted by Mr Minchin - General Portfolio - on a pounds 100 a month contract over four years and 11 months will have a zero transfer value due to the effect of charges.
Companies that get business from Mr Minchin's Pensionline are not complaining that his telephone advice system is inadequate. He is 'adding sophistication' to the analysis of charges, said a Sun Life spokesman, Brian Simmonds.
However, the whole industry is wary of making charging structures too clear to the consumer. It 'evokes an even closer analysis of what the broker takes out of the product', Mr Simmonds said.
In this sense, Pensionline has clearly hit a nerve and is to be applauded for it, though for the investor who needs detailed advice a more personal service may be preferable.