Clarity is the best policy on costs

Personal Finance

"TRANSPARENCY", that most modern of buzz-words, is slowly but steadily making itself felt in the sales of endowment policies and pension plans, thanks to two parallel and welcome developments. Specialist magazines such as Money Marketing and Money Management wade through figures for past performance and present them each year for public scrutiny.

Meanwhile the Government's own measures, slow and imperfect though they have been, are at last drawing attention to the amount of commission which salesmen and agents earn and the charges which fund managers deduct from the premiums they receive before they even start to invest them.

It is a long overdue improvement. Most of the mortgage endowment and pension business in the UK has traditionally gone to a couple of dozen insurance companies which are already big in the business and have the tied agents or sales forces and/or the contacts with independent financial advisers to keep their names on the panel of suppliers. It has been a cosy world in which there has been enough business for everyone, and the saver/investor was kept in a state of blissful ignorance at the charges being taken out of his or her savings.

But the past performance records show that some of the best performances in managing endowment policies in recent years have come from relatively small and little-known companies such as Swiss Pioneer Life, Royal London and Royal National Pension Fund for Nurses.

The biggest suppliers of endowment policies - CIS, Norwich Union and Standard Life - rank in mid-table, while big names such as the Prudential and Eagle Star performed very poorly. Over 25 years RNPFN, Wesleyan Assurance and Tunbridge Wells have outperformed all the big names in the business.

Pension fund performance throws up a different combination of good short- term performers, including Refuge Assurance, Royal London, Medical Sickness and Equitable Life, while the biggest players including CIS, Norwich Union, Pearl and Standard Life were strung out in the middle.

Sifting through the categories to allow for transfer values and early surrender values, single premium as opposed to regular savings, changes the racing order yet again. But there is enough evidence to show that some of the bigger companies cannot afford to go on relying on sheer size and embedded contacts to maintain the flow of new business.

Even more telling is the charging structure, derived from information that companies are now required to provide. Money Marketing calculates that a single premium of pounds 25,000 now growing at 9 per cent compound should make pounds 532,000 in 35 years before charges. But high- charge investors such as Provident Mutual, Prudential, Scottish Provident and Sun Life would cost the investor up to pounds 200,000 more than low-charge companies Royal Life, Scottish Amicable, Scottish Equitable and Scottish Life.

With this kind of publicity repeated every year, high-charge companies will have to cut their charges or retire to niche positions, and independent financial advisers have a duty to clients to see it happens quickly.

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