Making things easier - just a little

PROPOSED new rules for the life insurance industry aim to reveal how much an investment product costs, writes Maria Scott.

But anyone wanting to make an informed choice between one endowment or pension plan and another will face much more work than is required when they choose groceries in the supermarket.

Under rules drawn up by the industry regulator, Lautro, life companies will have to explain how much of their premiums are absorbed by the expenses involved in marketing the products.

Companies must use their own true costs in calculating the expense figures but will use assumed rates of investment growth laid down by Lautro so that comparisons can be made.

Expenses vary widely. The Securities and Investments Board believes average expenses on a 25-year with-profits endowment policy are 14p in the pound invested, but can range from 7p to 40p.

Companies will not be obliged to set their own expenses against any industry average, so customers wanting to make comparisons will have to obtain literature from other companies.

Cost is not the only factor to consider in judging a policy, however, and the benefit of low expenses could be far outweighed by poor performance.

When a company presents a customer with a quotation on how much he or she can expect to get back from a policy they must use standard rates of growth laid down by Lautro. Thus a company with a undistinguished investment history can quote exactly the same potential returns as one with a brilliant track record.

So anyone wanting to make an informed decision, taking into account both the costs of a policy and the company's ability to produce investment results, will be required to do some footwork.

Kit Jebens, chief executive of Lautro, is firmly of the view that investors must take responsibility for their choices. He says: 'Our intention is to provide as accurately as we can what the product will cost and the implications of getting out early.

'We are not providing a consumer advice service. It is not our function as a regulator.'