The Personal Investment Authority called for a reform of the regime that governs what investment companies have to tell customers about the charges they pay for setting up and running policies. Currently, investors are given no idea what happens if they simply stop their policies.
Under the PIA's regime for disclosure of charges, customers must be told what they will get for their investments if they last until maturity, often 25 years away, or until transfer to another scheme. But PIA figures released in November revealed that with most life offices a third of pension savers had simply stopped paying before three years were up.
Because charges are loaded on the first few years of payments, these policyholders received much worse value than the tiny minority who last to maturity. In some cases, customers could contribute pounds 50 a month for two years and have a fund of zero on retirement. Yet customers had no way of knowing the consequences of stopping payments.
Joe Palmer, PIA chairman, said: "[The evidence] suggests this may be an area where life offices are hoping to increase their profit margins without being subject to the disciplines of disclosure."
The PIA now wants to force life offices to disclose to customers what happens to savings when payments are stopped.
The problem was exposed last year in a joint investigation conducted by The Independent and World In Action, the TV documentary programme. It found that some offices were selling policies in full knowledge that customers were likely to lapse their policies. Sales people failed to tell customers what would happen to their savings if payments were not kept up.Reuse content