Cost of policies surges in spite of new rules

The cost of mortgage-related endowment policies and pensions sold to hundreds of thousands of people rose by up to 17 per cent last year, despite new rules forcing insurers to disclose their charges to investors in full, a survey showed yesterday.

Some of Britain's biggest household name companies, including Prudential, Guardian Royal Exchange (GRE) and Sun Alliance, strip away between 4 and 8 per cent each year in charges on 10-year pension policies. The average figure is 3.9 per cent.

The results contradicts claims two years ago by the Securities and Investments Board, the industry's leading regulator, that a new disclosure regime of company charges and expenses would deliver savings of pounds 1bn a year to investors. At least pounds 500m of that amount would come through reductions in commissions paid to salespeople, the SIB suggested.

Heavy charging structures mean that, taking today's 2.9 per cent underlying inflation levels into account, investment returns on these funds would have to reach at least 7 per cent each year simply to stand still in real value terms.

In the case of GRE's financial services offshoot, Guardian Financial, its annual charges of 8.1 per cent mean returns on a 10-year with-profits personal pension would have to be at least 11 per cent every year simply for a policyholder not to lose any money.

The figures were revealed yesterday a survey by Money Marketing, a financial services magazine, of with-profits policies sold by 35 of Britain's top insurance companies.

John Jenkins, an actuary and principal consultant at KPMG, the chartered accountancy firm which carried out the survey, said yesterday that the averages published yesterday may be even higher.

This was because in a number of cases, companies did not supply their 1994 figures and KPMG had to use lower ones in force the previous year. Mr Jenkins also predicted that a survey of more popular unit-linked policies, due later this year, was likely to show the same upward trend.

He said: "I can only think that what some offices have found is that their sales have been falling in the past year. If they have fixed costs, the eggect is likely to push prives up for new policyholders.

"It is getting to the stage where the amount of charges on a policy are higher than the the yield from equities.

"If that is the case, it cannot be best advice for financial advisers to recommend that their clients buy some of these policies, particularly those with heavy charges. They should be addressed towards cheaper unit trusts, Tessas and personal equity plans."

One financial adviser, who refused to be named, said yesterday: "The fact is that commissions have risen massively in the past few years. Large national brokers and networks use their financial muscle with life companies to force up commission rates by up to 30 or 40 per cent over the standard rate by promising to sell in volume.

Money Marketing's survey shows that the Reduction In Yield - or average annual charges - levied on 10-year endowments sold last year was 3.2 per cent, up from 3 per cent in 1994.

For 25-year pensions, annual charges ranged between the 0.8 per cent charged by Equitable Life and Guardian Financial's 8.1 per cent. Royal Insurance levied an annual charge of 4.8 per cent on policyholders' funds, while Sun Alliance with which it is about to merge, charged 5 per cent.

For 25-year pensions, the average charge dropped to 1.8 per cent. But Guardian Financial levied an annual fee of 4.7 per cent, while the Pru took 2.5 per cent, like the Royal.

The Securities and Invest-ments Board said it remained convinced that the benefits to policyholders of product disclosure will express themselves over the next 10 years.

Comment, page 19

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor