Skandia is calling for changes to the disclosure regime to ensure consumers know they could be better off saving into commission-based pensions instead of paying for advice via fees.
The life office says its latest calculations reveal the difference in pension funds generated by consumers paying fees or commission.
One calculation was based on contributions to a personal pension of £100 a month for 25 years and investment growth of 6 per cent a year. After ded ucting the 1 per cent charge, the final figure shows that funds can achieve bigger growth under a commission-based scheme.
This example assumes an upfront fee of £200, plus VAT of £50 and a £58.75 a year VAT-inclusive servicing fee. It uses the same example to work out how much better off someone would be if they invested that fee in a commission-based personal pension instead.
The reduction in yield for the commission-based personal pension is 1.5 per cent and the projected fund is £68,111 for basic-rate taxpayers.
For those paying fees the reduction in yield is 1.1 per cent but the projected fund size is lower at £67,268.
Pensions and Multifunds brand manager Peter Jordan says: “Our figures suggest clients should often invest personal pension fees in a commission-based personal pen sion instead.
“Unless the impact of fees and commission on the projected fund value is properly disclosed, comparing personal pensions which involve fee-paying with personal pensions that have builtin commission is like comparing apples and bananas. This sort of disclosure should be standard.”
But Keith Scott pensions manager Lucian Russ says: “Charging VAT on fees and not commission makes for an unlevel playing field but it's possible any further disclosure requirements may give the consumer too much information which may end up confusing them.”