More than half of pension scheme managers believe the top-up contracts, known as free-standing additional voluntary contributions (FSAVCs), had been mis-sold to members of employers' schemes, according to a survey yesterday.
Bacon & Woodrow, the leading actuary who commissioned the survey, yesterday said there was no doubt that many of the policies had been mis-sold and called for a full-scale review of the products.
Additional voluntary contributions (AVCs) are pension top-up policies sold to people who want to supplement the pension available from their employer. All employers are obliged to offer them if they already provide a pension scheme.
But concern has grown in recent years that financial advisers have persuaded thousands of employees to buy FSAVCs offered by insurance companies. It is feared that many employees have bought them without realising they are paying hefty commission and charges not levied by their employer.
Andy Cox, AVC expert at B&W, said: "There is no disputing that many pension scheme members who have taken out FSAVCs would have been financially better off with AVCs."
Mr Cox said justifications for taking out FSAVCs (as opposed to employer- sponsored AVCs) were "largely illusory".
Charges on FSAVCs were so much higher than their in-house counterpart that they could be expected to produce 10-15 per cent less money by retirement, equivalent to wasting a year's premiums.
The Personal Investment Authority, in charge of regulating the sale of FSAVCs, has for years resisted a full review of the products despite mounting predictions that they could amount to a second pension mis-selling scandal. The PIA has launched a preliminary investigation into the sale of the products to decide whether a full-scale review is necessary. No findings have so far been made public.