Lies, damned lies and claims of falling charges

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The Independent Online
For The past two years, increasingly weary punters have been treated to a charade by the Personal Investment Authority, the financial watchdog. Last week - as in 1996 - the PIA published a survey which showed, or so it claimed, that charges on the most common policies sold to investors had fallen slightly.

The regulator wants us to believe this, because for two years it has been implementing rules forcing companies to disclose the charges they impose on the policies they sell us.

In theory, the new disclosure regime was meant to deliver much greater competition. Savers would be able to compare products and choose the cheapest ones, an option previously denied them. So optimistic were the regulators that there were even predictions of a pounds 1bn bonanza.

The real picture is far more murky. Yes, there has been an overall cut of 3.9 per cent in the charges levied by PIA members, the life companies that sell the products. But this is nothing more than sleight of hand. For a start, a cut of 3.9 per cent is insignificant. If you charge pounds 1,000 on a policy and cut pounds 39 off the bill, punters are hardly going to cheer.

In any case the cut is an average figure. The reality, as the PIA itself has admitted, is that a minority of the most outrageously expensive companies - which did no business because of their high charges - have been dragged, screaming, into the real world.

The vast bulk of companies charge as much as they ever did, which is one heck of a lot. And a minority have pushed their prices up, not down. What's more, the PIA's figures are highly suspect. As this paper has argued, charges can be imposed at any point in the lifetime of a product. You can charge a lot at the start and tail off the fees at the end of a 25-year term.

The average costs will look cheap unless - as is often the case - policyholders stop paying in after a few years and end upbeaing the brunt of the charges.

In other words, millions of people will pay for several years into savings and other policies which will deliver even less when they finally pay out than some of the worst-charging building society accounts.

It is not surprising, therefore, that despite the risks involved in buying products over the telephone, investors are turning to providers such as Virgin and Scottish Widows for pensions and whatever else. Simpler and cheaper products can be an attractive proposition, as even Eagle Star discovered. Traditional companies will discover to their cost that we will have no more of this trickery.

Despite this new openness, however, Eagle Star's press release, which helpfully contained a chart to compare its performance with that of its rivals, left a little to be desired. In one section, it compared itself to Virgin, suggesting that like Richard Branson's company, it charges a pounds 2 monthly fee on the fund. Except that Virgin's fee is only paid when contributions are made. So if you halt payments, there is no monthly fee to be paid, unlike Eagle Star.

Whoops. Perhaps some habits are hard to break.

AT LAST, the Halifax has announced its free share proposals. They include a minimum 200 shares, worth up to pounds 900 for both savers and borrowers. The maximum is almost 1,200 shares on deposits of pounds 50,000 or more, worth up to pounds 5,400, according to the society's best estimates. The voting result is not really in doubt.

Failing that, members should make sure that the amount in their account on 24 February this year equals the level on 25 November 1994. Read the society's weighty, but informative, document now being mailed to all members.

In weeks to come, we will explain in more detail what people can do with with the shares themselves. Meanwhile, if you have any doubt about your eligibility, call 0800 527327.