Personal finance: The cost of picking wrong policies

A few weeks ago, the Consumers' Association (CA) published a report on "financial disclosure". This is the term given to a rule forcing insurance companies to tell their prospective clients exactly how much will be taken from policies they buy.

The CA report concluded that most people were baffled by the financial information they receive and consequently don't bother reading it. "See," cried sections of the financial industry, "the CA admits that forcing us to provide all this information to clients was a waste of time."

Actually, it said nothing of the sort - merely that when details are given of how much a policy will cost to take out, the information should be clear and relevant.

It is these issues which John Chapman and Janet Walford try to address in our centre pages this week. John, formerly a senior official at the Office of Fair Trading, argues that companies rely on the poor information we are given to sell us duff products. He puts forward his own alternative form of disclosure, plus a proposal on how products should be "benchmarked" or assessed as to their value at various stages in their lives.

Janet's story ties in with this. She is the highly esteemed editor of Money Management, a financial magazine which specialises in researching financial products, and her claim of how one company, Allied Dunbar, supplied her with wrong information for a survey on pension products makes important reading.

The company was asked to give details of what one of its 25-year policies would be worth if a person was unable to keep paying into it after two years and the money was left in there for the rest of the term. Essentially, the answer should have been zero. But Dunbar supplied details of another policy, which would have left pounds 13,000 in the pot - quite a difference.

I should point out that Allied Dunbar disputes her story. The company says the details it passed to Money Management were of a policy where a person who is unsure of their future need only pay into for two years, without incurring huge future penalties. This, it claims, was repeatedly pointed out to the magazine and no attempted deception was involved. Of course, Allied Dunbar, or "Allied Crowbar" as it was once known thanks to the forcefulness of its salespeople, is a highly reputable company and I accept its word entirely.

But what annoys me is its additional argument. The firm says that its advisers can only offer products based on what they are told by clients. Thankfully for all the Mystic Megs who know what their future hold two or three years down the line, the company has a policy with low charges for them.

But if you or I tell a Crowbar salesman that we expect to be able to keep on making contributions for the next 25 years and we suddenly get made redundant after two years, that's our problem, in other words.

I'm sure it is. But given that all our futures are so uncertain nowadays, I think I'll give Crowbar's products a miss.

Nic Cicutti was this week voted journalist of the year for national newspapers in the Scottish Life Pensions Awards.