Customers now have a choice on commission

There have been considerable changes in the nature and design of pensions contracts since the Family Money Personal Pension Survey first appeared in 1992.

Personal pension documents are easier to understand, there is more investment choice, charges are more transparent and - in a major response to consumer pressure - the pension providers are giving clients and their financial advisers a choice of whether to pay traditional up-front commission, spread out the commission, or go an entirely fee-based route.

"These days, 50 per cent of new personal pension business is done on a single premium business; the remainder are recurring premium policies, one third of which are now arranged on a strict nil-commission basis - the best type," says survey author Mr Eddie Hobbs.

"One third continue to be arranged on the old full front-end load of which commission eats up to 50 per cent of the first year's contributions, and every net increase thereafter. The remaining lot are arranged on the spread commission basis which eats up to 8 per cent of each year's contribution to retirement age, but at least which gives a better deal."

By opting to pay a fee instead of a commission, fund performance can increase by an automatic 0.75 per cent per annum, which over a period of 20 or 30 years can help to make the difference between an adequate and a very good pension return.

The level of all charges attached to a personal pension policy is not always easy to establish, especially in the case of withprofit contracts which are notoriously opaque. But a breakdown of unit-linked charges, which appeared in last year's survey, showed that the overall effect of costs can be the equivalent of losing 2 or 3 per cent growth from final maturity yields - enough, again, to make the difference between an adequate and a very good pension return. Irish Progressive policies, in particular, have suffered badly from this high "reduction-in-yield" charges structure.

If there is a single, consistent message from this survey, it is that pension cover remains one of the most important, but complicated investments that anyone can undertake. Copies of the 1997 Personal Pension Survey cost £100 and are available by calling FDM at 045-442051. The first 10 private investors who contact by e-mail: fdm@scs.iol.ie - will receive a copy free of charge.