The Consumers Association of Ireland has welcomed last week's statement by Mr Noel Treacy, the Minister of State for Enterprise and Employment, that he will re-examine his draft regulation order deleting provisions for life assurance commission disclosure.

But how clear are consumers about the impact of commission and other charges on a savings policy or pension?

Family Money asked financial adviser Mr John Gilmartin of the fee-based firm, Gunn Robinson O'Higgins, which does not take conventional commissions on life assurance products, what the difference was in final fund values, depending on which remuneration route the client chose.

He offered the following example of a man aged 39 who wished to retire at 60. The man is making annual contributions of £5,000 a year (for 20 1/2 years), indexed at 5 per cent per year. His money is going into a Norwich Union pension fund which, for the sake of the example, achieves an illustrated net return of 6.75 per cent per annum.

"If the client buys a full commission/full charges contract, his final fund will grow to a value of £314,740 out of which the client would receive £266,931," explains Mr Gilmartin. "The balance, £47,809, is accounted for with the company taking £37,568 in charges and the broker £10,241 in commission." Mr Gilmartin continues: "If someone was able to arrange the same pension on an entirely nil commission, nil-fee basis, his cash return would be £287,890, the company having taken £26,850 as its total set up and annual management charges over the 20 1/2 years.

"However, if the same client went the fee-route either by doing an execution-only transaction or by looking for on-going advice, the following would happen: if a one-off £200 execution-only fee was charged, the investment in year one would be £4,800 instead of £5,000. The total impact of losing that initial £200 works out at £672 in lost growth over the 20 1/2 years and the total cash fund would now amount to £287,218. The company still gets its £26,850 in charges.

"The client who goes the advisory route and pays a fee of £200 a year, indexed to take account of inflation of 2.5 per cent, will end up with a total fund of £276,317, about £10,000 better than the commission route."

Mr Gilmartin believes the cost of paying an indexed £200 a year retainer fee is fair and cost effective because of the level of service provided. The total fee over the 20 1/2 years to the adviser is £6,307; the total company charge is £32,116.

The other attraction of going the fee route, he says, is that the early values of the fund are better by a few thousand pounds in each of the early years than if the client goes the full commission/charges route. For example, instead of a first-year value of £2,706, the feepaid pension is worth £5,019 in year one.

In year two, the full charge versus fee-paid pension is £8,046/£10,604; by year three the differential is £13,984/£16,802; by year four it is £20,574/£23,664 and by year five, the breakeven year, the differential is £27,869/£31,247. (A company like Equitable Life, which pays no commission and has the lowest cost structure would produce an even greater fund value differential than this example from Norwich Union.)

Despite the fact that pension contracts should be regarded as long-term investments and set-up charges will be absorbed if there is good, long-term fund growth, the simple truth is that for an increasing number of people, the transfer value of their pension in the early years is relevant. For these people, it is no longer acceptable that 20 years worth of charges are levied in the early years, as happens with a full-commission contract. Mr Gilmartin's examples also demonstrate why the insurance industry is so reluctant to allow full disclosure of charges. His figures show that the companies' share of the overall charges are far higher over the term of the contract than that which is paid to the intermediary. If it has proved difficult for the salesperson or broker to justify taking several thousand pounds in commission, is it any surprise that the insurance companies would prefer to avoid explaining how they can take a charge that is four or five times greater?