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Why charges must be transparent

In view of the sales induction methods used by the insurance industry for years, I should not be too surprised by the views expressed by Kevin Moss and Philip Thomas (Money Marketing, February 26).

In the case of pensions, our industry has been notorious for camouflaging charges – they have a vested interest in doing so. Many consumers have little understanding of how charges impact on their retirement savings but they know they need a pension and therefore buy in good faith. The colossal level of charges levied by some pension companies is testimony to their good faith being frequently misplaced. If Mr Moss&#39s clients have little interest in how much he is being paid, the correlation between commission and the amount of money actually invested is not being properly explained to them. If the transaction was carried out on a nil-commission basis, with fees separately invoiced, would those same clients be indifferent to the size of fees?

As for Dr Thomas, he would appear to believe that pensions were evolved to provide him with an income rather than an efficient savings vehicle for his clients. Dr Thomas either does not understand the impact of charges or is being very selective with his figures. On a 25-year contract, 3 per cent of total premiums paid as commission in year one has the same impact (on the retirement fund) as 7 per cent of premiums taken annually. Regardless, the case he puts forward is totally irrelevant. Taken to its natural conclusion, it wouldn&#39t matter how high charges were so long as advisers could substantiate their own costs. To provide a proper service, IFAs must receive a reasonable level of income but, if this cannot be achieved without selling high commission contracts, they will inevitably have to move aside for the increasing number of pension providers who can.

John Sheffield, AIS Pensions, London SW19

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