If you are paying free-standing additional voluntary contributions (FSAVCs) then the chances are you will have a much smaller pension than if you had paid your AVCs into your employer’s company pension scheme.

There are two main reasons for this:

Firstly, FSAVC policies levy high charges (necessary to pay the salesman’s commission and to cover the cost of administration) which act as a ‘drag’ on performance, lowering the policy value. In contrast, company AVC schemes are usually free of charges because there is no salesman’s commission and the company will often subsidise the cost of administration.

Secondly, if your company scheme is the so-called ‘final salary’ type (i.e. you receive a guaranteed proportion of your final salary at retirement; the exact amount determined by your length of service) then you can normally buy extra years of service to boost your pension. Pensions from such ‘added years’ schemes, as they are known, are not subject to risky stock market movements and thus tend to produce much higher pensions than FSAVCs.

When the Conservative Government allowed insurance companies to muscle into the AVC market in 1988, a whole series of complex selling rules and regulations followed. The purpose was to try to ensure company AVC schemes weren’t ignored or denigrated by insurance company salesmen purely for the sake of earning commission on FSAVC sales. There was meant to be a level playing field between FSAVCs and AVCs so that people could make a properly informed choice between them.

However, many insurance companies either did not understand these rules, or did not train their salesmen properly, or simply made no real attempt to implement them.

As a result, FSAVC policy sales soared (over one million have been sold in total) when most of the people who were sold them would have been much better off investing into their own company AVC scheme. On average, funds accrued in company AVC schemes would now be £4,500 to £7,000 greater for the same FSAVC contribution. And if you could have bought 'added years' of service in a final salary scheme then your losses could be considerably greater than this.

It is yet another pensions scandal that has been hidden from public view. I've had considerable success winning compensation for FSAVC mis-selling so please go to the Claim Now page so I can help you get your pension back on track. And don't worry if you have already stopped paying into your FSAVC - it won't affect your claim.