Pensions (Mis-selling) (Hansard, 25 July 1997)

§ Mr. Andrew Love (Edmonton)

I am grateful to Madam Speaker for giving me an opportunity to raise this critical issue before the summer recess.

One of the biggest financial scandals in British history. Those are not my words, but the headline from a Sunday newspaper earlier this year, which described its view of the mis-selling of pensions scandal. A bit of journalistic licence, no doubt, but the headline reflects the true scale of the scandal in terms of both the numbers of people directly affected and the level of financial loss that they have incurred. It also reflects the impact that the events have had on the wider pensions industry.

Pensions are about providing security in old age. It can be provided only through long-term savings, which depend critically on trust and consumer confidence. Both have been undermined as part of the fallout surrounding the scandal and the failure of the pensions industry to identify and compensate those affected.

The scandal could not have reached the proportions it has had it not been sustained by a potent mix of ideological prejudice and institutional incompetence. The conditions for it were created by a Government intent on offloading those on state pensions into individualised schemes in the private sector. That was done through a combination of bribes at the taxpayer's expense and an expensive advertising campaign to promote such schemes.

It was fuelled by a pensions industry unable and unwilling to restrain the baser instincts of its sales staff, whose salaries were almost exclusively dependent on making a sale and earning a commission. It was sustained by a regulatory regime that failed adequately to tackle the mounting evidence of mis-selling or set effective deadlines for redress. It was writ large by a combination of pensions industry indifference and the palpable failures of self-regulation.

It all started in 1988, the year in which personal pensions were launched and when the main provisions of the Financial Services Act 1986 came into force. However, it was not until December 1993, a full five years later, that the issue of mis-selling first came to light. At that time, the Securities and Investments Board commissioned KPMG, a leading firm of City accountants, to review the files of a sample of clients who had been sold personal pensions. Only 9 per cent. of those files showed evidence of substantial compliance with the rules, and the report classified 37 per cent. of the files as suspect.

Personal pensions were supposed to be sold against rigorous standards that were set out in the Financial Services Act. Not only should clients receive best advice on the choices before them, which would have included remaining with their existing pension providers, but sales staff also had a duty to find out about current pension arrangements and financial circumstances. To underpin those standards, the Government set up a number of watchdogs. The problem was that, under self-regulation, the watchdogs were those who were selling personal pensions.

Despite the overwhelming evidence of mis-selling that emerged in late 1993 and early 1994, it was almost a year before the SIB published a programme for securing 1199 redress for the victims of mis-selling. The extent of the scandal began to emerge at that time. It was on an unprecedented scale, with more than 570,000 priority one cases—those at or near retirement—and a further 1 million to 2 million cases involving younger people. There is some evidence that those may be underestimates, because some sections of the industry have shown a marked reluctance to alert their clients to the fact that they may have been mis-sold pensions and are due for compensation.

Various deadlines in 1995 and 1996 were set for the review of cases of the different priority groups. None has been met. In the two and a half years following the first evidence of mis-selling, the pensions industry was able to deal only with just under 1 per cent. of priority one cases.

That lamentable record was matched, if not exceeded, by that of the Conservative Government. They did nothing, because they were responsible for creating the climate in which mis-selling could take place. Their failure can be summed up by the fact that more than 18,000 people who were mis-sold personal pensions died during their administration without receiving compensation.

I am pleased to see that the Government have been and will be more robust in meeting the new deadlines for case review and for the payment of compensation. The decision to get tough, and to name and shame those who are dragging their feet, has been universally welcomed by Labour Members, by those directly affected, and by the public. They have been welcomed by everyone except some of the companies involved, and by Opposition Members, who are absent for the debate and who remain strangely silent on the issue.

I note the new determination of City regulators to enforce the review deadline with a threat of heavy fines for companies that do not comply. All that is welcome.

Before I am accused of knocking the pensions industry as an easy target, I shall put to the Minister two of its concerns about the continuing delay in the processing of claims. I have been told by those companies that want to clear up the mess that they are being hampered by the pension funds of small and medium-sized companies, which do not have the resources to respond with the basic information that is necessary to agree compensation.

There is also concern over the prospects of reaching an agreement with the regulatory organisations about practical schemes which, I am told, many companies are anxious to develop to resolve outstanding claims. Perhaps the Minister will comment on that. Even assuming that its concerns are valid, the pensions industry would have to accept that the latest published figures to the end of June, which show that only two of the 24 companies have managed to compensate more than one in 10 of their cases are deplorable.

Even allowing for the argument of the Association of British Insurers that the figures include a considerable number of cases where no mis-selling has been found—and I would certainly wish to argue with it about the numbers—there is still a considerable mountain to climb to complete the review by the end of the year.

Recognising that the Government's freedom of action is somewhat constricted by the threat of litigation, I wonder what further action the Minister could contemplate, to achieve, in her own words: the Government's determination that this matter be resolved with dispatch". 1200 What scope does she have for the extension of sanctions against companies that simply refuse to take the steps necessary to deliver the targets for completion of case reviews set by the regulators?

If companies continue to refuse to adopt the type of practices that the Government believe will hasten the conclusion of case reviews, will my hon. Friend consider further sanctions? Recently, the Minister for Welfare Reform suggested extending the powers of the Personal Investment Authority to include fines on directors. What scope exists to disqualify company directors who continue to refuse to comply?

In the context of the recently announced pensions review, I hope that the Minister will confirm that the Government will not consider extending the scope of privately funded pension arrangements before the issue of mis-selling has been resolved, and that those companies that fail to meet the targets set by the regulatory authorities will prejudice their inclusion in any new arrangements following that review.

The mis-selling of pensions exposed all that is wrong with self-regulation. As a result, I welcome the Government's commitment to statutory backing through a new financial services Act and the creation of what has been called Super SIB. However, we must recognise the concern of much of the industry that those changes should not lead to an increase in industry compliance costs, which will inevitably filter through to the consumer.

Regulation must be at a level that has the confidence of the consumer, and re-establishes the trust that has been so badly dented through this whole fiasco; but regulation must also be delivered at a cost that can be justified. Achieving a balance that creates a framework of effective regulation that is appropriate, responsive and flexible will be one of the foremost challenges facing the new arrangements.

One of the lessons of the recent past is the need for greater transparency, in terms of both the financial arrangements underpinning personal pensions and the degree of independence of so-called "independent" financial advisers. The Consumers Association has campaigned for a fee-based system, under which people pay for genuine advice from truly independent financial advisers, rather than having people posing as such, as at present.

Although changes have been made in the financial arrangements for personal pensions, there is some evidence that sales staff are still too dependent on commissions, and that the level of training is not appropriate. As a result, human nature could again undermine confidence in the industry, which is so vital to its future.

The Minister has made it clear more than once that her decision to review progress and to publish information is in the public interest. I agree. One of the problems that has undermined consumer confidence in the industry is the lack of published information. Real benefits to the consumer would accrue from the provision of simple and easily understood information about the financial aspects of personal pensions.

Much of the excuse for the obsessive secrecy of the industry is the highly technical nature, it is claimed, of much of that information, but that could be presented in a more user-friendly way, and it should be possible to 1201 introduce chartermarks to help consumers to find their way with confidence through the maze of pension products available in the marketplace.

It is only by a combination of prompt and determined action to end this sorry saga, and new and more effective regulation, that it will be possible to re-establish that trust with the public, so that private pensions, for defined groups in certain circumstances, can hold out the promise of security in old age.

§ The Economic Secretary to the Treasury (Mrs. Helen Liddell)

I congratulate my hon. Friend the Member for Edmonton (Mr. Love) on his success in securing this debate, which is of great interest to many of my hon. Friends. I congratulate him also on his truly superb speech, which has put the issue in context. He is right to draw attention to the fact that no Conservative Members are present to discuss an issue that affects 600,000 people in the short term, and possibly 2 million more. Perhaps it is a measure of the Conservatives' guilt, or their lack of concern for the many innocent people who were duped as a result of legislation introduced by the previous Government.

My hon. Friend is right: the previous Government created a climate in which it was acceptable to rip people off by selling pension products. He is right to draw attention to the expensive advertising campaigns that were launched. He is correct also to draw attention to the previous Government's almost complete inaction when the scale of the problem became obvious.

My right hon. and hon. Friends are concerned about this matter because many people visit our constituency advice offices as a consequence of pension mis-selling. Some of the cases are horrendous. There are many widows of miners in my constituency, and it is heartbreaking trying to deal with the consequences caused by the mis-selling of pensions to their late husbands, who thought that they were providing well for their wives, but who, through no fault of their own, have left them in penury.

I turn to the actions of the new Government since our election on 1 May. With the encouragement of the Chancellor of the Exchequer—who also represents a mining area and whose constituency, like those of many of my hon. Friends, comprises many public sector employees—I called a meeting of the 24 worst-performing companies in an attempt to resolve the pension mis-selling problem. My main priority was to get them to act on the 600,000 priority cases involving people who are at or near retirement.

Some 24 people met me at the Treasury, and I could see from the looks on some faces that it had only just dawned on them that the problem affects real people, is causing real anger in the country and is affecting the reputation of a very valuable sector of the British economy. It is deplorable that a key high-performing, high-profit industry should have an appalling reputation that rivals that of Arthur Daley as a result of pensions mis-selling. It is in the interests of the industry and of the people affected to resolve the matter.

I challenged those companies to come to me within a month with details of how they intended to handle the cases, and I undertook to publish every month the details 1202 of their progress. I did not take such action in order to name and shame, as the newspapers have claimed, but because the people affected have a right to know that their Government are as concerned and as horrified about the problem as they are.

When I published the first results of the inquiry at the beginning of this month in answer to my hon. Friend the Member for East Ham (Mr. Timms), I was horrified. The situation is worse than even I had expected. There is nothing to be gained by condemning the companies involved: they stand condemned by their own actions. I am anxious to ensure that people get redress quickly. I say to those companies—through you, Mr. Deputy Speaker—that it is not acceptable to take short cuts that result in people being worse off at the end of the process than at the beginning.

I am worried by reports from some of my hon. Friends that some individuals are being put under unacceptable pressure to settle by companies that mis-sold them pensions as a means of improving their statistics in the returns that I am asking for. I am not prepared to be hoodwinked by such action. I know that responsible companies will be appalled that that is going on.

I am aware that companies are experiencing some difficulties. I have made it clear that, if they come to me with their difficulties and if they stand up to investigation, I shall be happy to act. If necessary, my hon. Friend the Minister for Welfare Reform and I will talk to small and large companies in difficulty. I have asked those of my right hon. and hon. Friends whose ministerial responsibilities relate to pensions to ensure that pension funds in their areas are diligent in settling cases.

I accept the point that the insurance companies made to my hon. Friend the Member for Edmonton. I am tired of excuses, but I shall take action if excuses are justified.

I understand that discussions are going ahead on the slowness of the regulatory authorities in dealing with special schemes to settle. The regulators are in no doubt about my determination to resolve the issue.

I have nothing to gain from criticising the regulators. We have to work together to resolve the issue. I am sure that those in this House and further afield will not miss the fact that one of this Government's early acts was to announce our determination to review and reform financial services regulation.

My hon. Friend has asked what further action I shall take. He has made several excellent suggestions, which I shall consider. I shall not go into detail, and I am sure that my hon. Friend will understand why. In the autumn, I must decide what further action I must take to ensure the swiftest possible progress on the issue. I shall rule nothing out. That means that I shall take account of the powers I already have, and if new powers are required, I shall not hesitate to seek a means of acquiring them.

My hon. Friend is right to raise the question of independent financial advisers. They have managed to escape the main brunt of the Government's criticism—not because we are lax on them, but because there are 6,000 of them and we are currently researching their performance. I am largely appalled by the stories that I have heard from that sector as well. There is a need for better training and better standards. My hon. Friend is right to point to the plans that we are likely to have for the future of pensions. We shall bear in mind our 1203 experience in resolving the mis-selling of pensions when we look to the future. My hon. Friend is also right to make the case for transparency.

My hon. Friend has given me an opportunity to tell the pensions industry that I want to co-operate with it to ensure that it gives people security well into the next century. The only way to secure that is by ensuring that we resolve this fiasco as quickly as possible. In the next few months, I shall encourage those of a younger generation who have bought personal pensions to check those products so that we can be sure that there is not a 1204 time bomb for the future, left to us by a previous Government who were more interested in a quick buck than in the well-being of the most vulnerable in our community.

I congratulate my hon. Friend again. He can be assured that the new Labour Government will do everything in our power to resolve the problem of the mis-selling of personal pensions.