Personal Finance: Millions of people are stuck with pensions taken out when companies charged whatever they wanted

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The Independent Online
I HAVE always had a soft spot for Money Management magazine. It is a specialist publication, aimed primarily at independent financial advisers.

Over the years it has provided an invaluable service by publishing, time and time again, performance figures for the scores of companies supplying a wide range of financial products.

This month's issue does sterling work on the personal pensions front. Its findings make frightening reading: if you invested a single premium of pounds 10,000 in a pension fund which grew at 9 per cent a year, after 15 years, the fund would grow to pounds 36,425 if there were no charges levied on it. Obviously, that is completely unreasonable: all fund managers and providers and salespeople must make a living somehow. So it is easy to see, for example, why Equitable Life might want to take pounds 3,303 in total charges over that period, or Norwich Union could levy a fee of pounds 4,527.

But how on earth can Nationwide Life justify grabbing pounds 7,812 out of that same amount, or Eagle Star taking pounds 8,131, or Skandia Life charging a whopping pounds 9,849?

The same picture applies to regular premium pensions, where over the same period, monthly contributions of pounds 200 would build up a plan worth pounds 73,856 without charges. Winterthur Life makes do with pounds 5,341 in charges and Equitable Life with a couple of hundred quid more. But United Friendly clearly believes it needs to take away pounds 18,000-odd of its policyholders' cash, while Sun Life of Canada's salespeople can't survive unless they grab almost pounds 14,500.

Some companies will argue that they have acted to bring down their charges in the past few years. That is true, a fact which Money Management recognises - among a few companies at least.

For example, Eagle Star, the high-charging provider named earlier, has brought out a highly competitive and flexible pension. But that still leaves millions of policyholders stuck with contracts devised five or 10 years ago, when life insurers felt they could get away with charging almost anything they wanted - and did.

Moreover, until 1995 it was virtually impossible for would-be customers to tell what they were being charged, because life insurers were only required to provide details of the average for the whole of the industry.

So I have a proposal to make. It strikes me that if a person signs a contract with a company where the charges are not explained, or are done in a totally impenetrable way, that's an unfair contract.

Why doesn't the Office of Fair Trading investigate those companies and their contracts under the Unfair Terms in Consumer Contract Regulations? It could require companies in breach of these regulations to place all their policyholders on a fair contract, perhaps even backdate compensation.

The OFT is a very busy organisation, so perhaps it ought to pass on its powers in this area to the newly-formed Financial Service Authority, the financial watchdog. Then the fun would really start.

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