§ The Economic Secretary to the Treasury (Mrs. Helen Liddell)
With permission, Madam Speaker, I would like to make a further statement on the mis-selling of personal pensions.
On 9 July, I reported to the House on the progress being made by individual firms with most cases to put right in what is possibly the most extensive scandal ever seen in our financial services industry. Each month subsequently, I have published the latest facts available to me. Today I have placed in the Library further information about the progress being made.
We are now seeing positive results from the pressure applied since this Government were elected. In May, only 2 per cent. of cases had been compensated. Now there has been a sevenfold increase in the number of people receiving compensation—proof that, in the cold glare of publicity, firms can raise their game and make progress. However, more could and should be done.
Before I go into more detail, it might assist the House if I recall the events that led to this scandal. The Social Security Act 1986, a much-vaunted piece of legislation by the previous Government, encouraged millions of people to change sound pension arrangements for something different, in the belief that they would be more secure in later life. Some will be; not all, however. For some, the change meant a future less secure, not more so.
Between 1988 and 1994, life insurance companies, independent financial advisers, banks and building societies, through vigorous marketing, sold more than 5 million personal pensions. It soon became clear that that meant disaster for many, including hundreds of thousands in the nursing, teaching and other professions, who had been persuaded against their best interests to abandon the safety of their occupational schemes.
The truth is that many firms did not abide by the regulatory rules then in force, requiring them to give suitable advice. Among those firms failing their customers were many household names. The Securities and Investments Board in 1994 took the unprecedented step of requiring firms to review the cases of those most likely to have suffered. The scale of the problem can now be seen. Some 600,000 cases are currently being reviewed, and on current indications the cost of compensation will be at least £2 billion.
Deadlines were set for completing the most urgent reviews. Those were well missed, and the previous Government stood by and let that happen. On 14 May this year, I met heads of 24 firms, responsible for about three quarters of the total of cases. I left them in no doubt about our determination to ensure that those wasted years would be redeemed.
Most of the big firms are making headway—indeed, some of them have made large strides—but far too many firms, from large insurance companies to small independent advisers, have been far too slow to act, and some have hardly even started. They have failed to grasp the severity of the situation.
The experience of the past few months shows that pressure from the Government, the regulators and the public is working. I intend to maintain that pressure until the review is completed. In May, the regulator set hard 156 but realistic new targets for all the firms concerned, and made it clear that there would be robust disciplinary action. For most firms, the first of those targets is to complete 90 per cent. of the most urgent cases by the end of next month. Beyond that, they must complete all their priority reviews by the end of next year, at the very latest. When they reach that target, I shall remove their names from the list that I publish each month—although they must continue to update me on their progress.
The recent reprimands and fines against firms such as the Prudential, Friends Provident and DBS have attracted wide publicity. This disciplinary rigour will continue. However, the Government and the regulators recognise that, in respect of some companies at least, those sanctions may not be enough—they are not galvanising the laggards. For them, a stronger armoury of sanctions is required. The Personal Investment Authority is working to achieve that through individual registration, and the new regime will come into force as soon as possible next year.
Once that regime is in place, sanctions can be fine-tuned to apply pressure directly on those responsible. Individual directors, managers or sales people found to be at fault will face the prospect of fines, public reprimands or restrictions upon the type of work in which they may be involved. In extreme cases, they could be expelled from the industry.
The public have a right to know about these failures. At present, the PIA has the power to require firms to advertise their misconduct and the grounds on which they have been disciplined. That power has been kept in reserve, but there is now every reason to use it to the full. The PIA is currently examining ways of ensuring that customers are informed directly of a firm's failings. The Government believe that the time has come for a tougher range of sanctions to come into play. The only way for a firm or an individual to avoid disciplinary action is to avoid the conduct that warrants it.
While putting right the wrongs of pensions mis-selling has been the priority, the Government have not lost sight of the fact that the financial services industry is central to our economic prosperity, and to the welfare of millions of people. However, its prosperity requires the confidence of the public. That is why the industry must act quickly to restore that confidence. If there is continuing evidence that some firms have refused to learn the lessons of the past few years and are still harming investors, we shall act to clean up the industry.
To this end, the PIA has the authority to intervene on behalf of the public and require that a firm ceases to market or sell some or all of its investment products for a period, and puts its house in order. Firms whose compliance with the regulator's requirements is so poor that investors are put at risk can effectively be put out of business. The PIA will use that power wherever it is warranted. Candidates for that action will include any independent financial adviser or any other firms found to be using the review process as a foot in the door to sell more products.
The regulators and the Government also have powers to protect the public by taking action to exclude senior people who are not fit and proper from involvement in financial services business. Those who are not fit and proper can be removed from their posts—and we shall see that they are removed. In the years ahead, the Government plan to introduce legislation that will have a profound 157 impact on the financial services environment. Lessons learned from the pensions mis-selling episode will be in all our minds as we go about that task in relation to stakeholder pensions and individual savings accounts, and as we reform the regulatory regime itself.
So far as pensions policy is concerned, we will not repeat the mistakes of the previous Government. We will not set people up to be fleeced. We anticipate that future decisions on the regulatory approval of stakeholder pension schemes will take into account the conduct and the corporate governance of all those involved. That would, of course, include their record in settling cases of mis-sold personal pensions.
I hope that, through the combination of measures that I have outlined to the House today, we can ensure that never again will the public be exposed to such a scandal as that which I have described, and that those who have suffered can now look for speedy redress. Justice for them has been too long delayed: this Government are determined to ensure that it is delivered.
§ Mr. Tim Boswell (Daventry)
Will the Economic Secretary accept for a start that we on the Conservative Benches entirely share her desire to rectify the consequences of pensions mis-selling as speedily as possible, consistent only with the proper discharge of the wider responsibility of insurance companies for the sound conduct of their business. We believe that the proper approach is through the regulatory mechanisms that we largely put in place—every one of those to which she referred were already in place. Those actions were taken further by Angela Knight, who was then a Minister in the previous Government.
Will the Economic Secretary acknowledge that, although the targets had been set by the regulator, most of these are for completion next month at the earliest; that neither she nor we are yet in a position to say that most individuals or companies have failed to meet their current targets; and that many will in fact meet them?
Will the hon. Lady also concede that the proper approach to the problem of pension mis-selling is through the regulator's steady and objective work, and the progressive use and tightening of the powers of sanction available to him, rather than through an approach that could be described as confessional, based on the naming and shaming of individual companies by a Minister? Does not her role in this increasingly resemble that of a public relations stunt, by a Minister who was herself employed in public relations by the late Robert Maxwell, one of the biggest mis-sellers of all?
Can we have a further assurance from the Economic Secretary that in no case will a company or individual who is likely to be in the frame for her naming and shaming be treated softly on the grounds of any association with, donation to or work for the Labour party or the Government? In particular, is it not interesting that her statement refers to the Prudential Assurance company, of which Peter Davis—he is well known to many of us, too—is chief executive? Is it not odd that she is shaming him while, simultaneously, the Government are prepared to condone him as the leader of the team on welfare to work, dealing with some of the most sensitive and underprivileged members of our society?
158 More widely, perhaps, will the Economic Secretary accept that, although the mis-selling of some private pensions and personal pensions was wrong and must be rectified, the United Kingdom is in an enviable position internationally, both with the strength of the financial services industry, to which she referred, and with the accumulation of some £650 billion of pension fund assets; and that only today representatives of German banks were reported as pressing their Government to enable the early establishment of what they described as Anglo-Saxon type pension funds?
Will the Economic Secretary acknowledge—it will be the first acknowledgement to come from the Government if she does so—that the present Government's smash and grab raid on pension funds through the pension tax in the sum of £5 billion a year, which they imposed in the last Budget, has cost every pension holder in the land a significant amount of their future pension? To be more specific, does she accept that the average cost to county council pension schemes, three quarters of which were in deficit at the last actuarial revision, is £3.7 million a year?
Will the Economic Secretary also acknowledge that the Government's proposals in the Budget have made opting out from the state earnings-related pension scheme much less attractive, and that, as a result, many people who have taken a personal pension would be better off in the SERPS scheme? Perhaps she will tell me that the Government will commit themselves to a public information programme to explain the implications to people who in effect have been mis-sold a personal pension by the Government. Would that not be a contribution to truth for the pension holder?
Finally, will the hon. Lady explain why the Chancellor of the Exchequer has refused to give a straight answer to the questions that we have asked him? Is it not, in fact, the Chancellor—who is sitting next to the hon. Lady—whom she should be considering for naming and shaming?
§ Mrs. Liddell
We have just seen a manifestation of why, when we were elected in May, fewer than 2 per cent. of pensions cases had been dealt with. Under the last Government, there was a complete failure to take into account not just the fact that 600,000 people had been mis-sold personal pensions, but the fact that 18,000 had since died without securing redress. Today, we have seen an Opposition wriggling on the record of their own performance in government. We took the action we did because of our determination to see innocent people receive redress.
The hon. Gentleman talked about the Prudential. The Prudential will be dealt with by the regulators as they see fit, but the Government have decided that the structure of regulation needs to be reformed. The hon. Gentleman might have served the House better if he had come to the Dispatch Box and apologised for the performance of the previous Government.
§ Mr. Dennis Skinner (Bolsover)
Does my hon. Friend agree that, while the guilty people are the insurance company chiefs, many of the guilty people sit on the Opposition Benches? Scores of Tory Members were associated with those companies when the Tory Government were in power, and it was they who believed that market forces could allow people to change their pensions in such a fashion.
159 I stand up today because I remember when the miners, having ripped their guts out in the pits, saw those pits closed by that lousy Tory Government. Then these people came knocking on their doors—sent by Opposition Members, or their friends—saying, "Transfer your pensions, and you will get more money." The net result is that many of them have lost thousands.
I suggest that, if we do not get all that money back from those insurance companies, we should surcharge that lot over there, because they were instrumental in carrying out the mis-selling.
§ Mrs. Liddell
I could not have put it better myself. As one who represents a mining constituency—as, indeed, does my right hon. Friend the Chancellor—I know the hardship that has been caused to the families of miners, and the great distress that has been caused to, in particular, the widows of miners whose husbands thought that they had left them well provided for, but who now find that they were duped because of actions taken by the last Government.
§ Mr. Edward Davey (Kingston and Surbiton)
Liberal Democrats welcome today's statement. Many people throughout the country are delighted that the new Government are taking the mis-selling of pensions seriously, although for far too many their action has come too late.
Has the Economic Secretary considered other measures to tackle the problem—for example, the reform of training and of the requirements for professional qualifications in those who are involved in selling financial products such as personal pensions? If the hon. Lady has not considered those measures, has she considered giving such a remit to the new Financial Services Authority, so that, in future, the financial services industry can proceed with confidence, and consumers can buy its products knowing that those who sell them have been properly trained and are competent?
§ Mrs. Liddell
The hon. Gentleman makes a good point. We have had extensive discussions about matters relating to training, and about the standards of those who give financial advice. I was interested to note that the hon. Member for Daventry (Mr. Boswell) gave some financial advice himself; I wonder whether he is registered to do so.
As for regulatory reform, we intend to look closely at ways of improving the standards of financial advice—and, indeed, the standards of consumer education in relation to financial services products.
§ Mr. Ivor Caplin (Hove)
I, too, welcome the statement. I am sure that, like the rest of the House, my hon. Friend will be aware of the public apology made by Peter Davis, the chief executive of the Prudential. [HON. MEMBERS: "Reading."] I am not, actually.
Is my hon. Friend aware that the Prudential is still failing victims, and is likely to continue to do so, and to miss the targets for next March? What does she plan to do about that?
§ Mrs. Liddell
It is interesting to note the discomfort that is experienced by Conservative Members when important points are being made about ensuring that people meet targets. The purpose of today's statement is 160 to concentrate the minds of those who think that the Government are not serious about ensuring that the targets are met. They cannot now be left in any doubt about the seriousness with which the Government and the regulators treat these matters.
§ Mr. Peter Brooke (Cities of London and Westminster)
The way in which the Minister plays her hand is for her to decide. Is she implying that she is against the principle of the Social Security Act 1986?
§ Mr. Jim Murphy (Eastwood)
I congratulate my hon. Friend on the work that she has done on this important issue. Will she confirm that the inability of companies to meet their targets for compensation, and the inability of the Conservative party to deal with this matter while in government, has led to many thousands of pensioners dying without receiving any compensation?
§ Mrs. Liddell
My hon. Friend makes a good point. Indeed, nothing that we have done could not have been done by the previous Government. They failed to take action, because they turned a blind eye to the crisis, despite the fact that everyone knew what was going on. The Conservative party's behaviour is shameful.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
Does the Economic Secretary share my concern about recent reports that financial advisers are still advising people to move their savings out of company schemes and into personal plans, to a value of almost £100 million this year? They are mainly people who are approaching retirement age and want access to income draw-down and phased retirement schemes. Potentially huge commissions are involved. Will she undertake to reinforce the work that has been done by the Personal Investment Authority to ensure that there is no phase 2 of this scandal?
§ Mrs. Liddell
I commend the hon. Gentleman on his expertise in these matters. He makes an important point, which allows me to highlight the fact that, in addition to the 600,000 people in the priority categories who have been mis-sold personal pensions, we estimate that there could be between 1 million and 1.5 million non-priority cases involving younger people who have bought personal pension products. I urge people to check personal pension products to ensure that they have not been mis-sold, so that we do not have a time bomb for the future. The hon. Gentleman's point is well made.
§ Jacqui Smith (Redditch)
As a teacher in the late 1980s and the early 1990s, I was conscious of the hard sell by many pension companies to try to persuade teachers to move out of what my hon. Friend has described as a good pension scheme, and into a private pension scheme. My hon. Friend has given us some idea of how many people may have been affected, but does she agree with me that there could be even more people than we are currently aware of, because some companies and some sections of the industry are still failing to warn their customers that they may have been mis-sold pensions?
§ Mrs. Liddell
My hon. Friend makes a valid point. It is not just companies that are failing to warn their customers that they may have been mis-sold pensions. It is important that people check any material they receive from pension companies. As a result of my statement, I hope that the Personal Investment Authority will insist that marketing material contains details of any penalties that companies have incurred through the mis-selling of personal pensions.
§ Mr. Nick St. Aubyn (Guildford)
The Minister said that 600,000 cases are being reviewed, out of a total of 5 million. Does that not imply that more than 4 million of those who were sold personal pensions were not damaged as a result of the previous Government's initiative, and that, for some people, personal pensions were a good choice and a benefit? Would the Minister care to contrast that experience with the universal suffering caused by the present Government's manifesto mis-selling, given that they have imposed a pensions tax on every pension scheme?
§ Mrs. Liddell
The hon. Gentleman is an apologist for those who have mis-sold personal pensions. He does not understand the position. The 600,000 who are currently being reviewed are at or near retirement. The point that I made in response to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) was that there could be an additional 1 million to 1.5 million younger people who have been mis-sold personal pensions, which is a substantial number out of 5 million. Rather than act as an apologist, the hon. Gentleman should do his bit to ensure that this matter is resolved.
§ Mr. Ian Davidson (Glasgow, Pollok)
Unlike many of my colleagues, I wish not to praise the Minister but to criticise her, for being too soft on the people running the pensions industry. Will she stop using euphemisms such as "mis-selling", as if it was in some way accidental? Why does she not just describe it as theft, which is a much more accurate description of what actually took place?
Why do Governments continue to be mealy-mouthed when it comes to white-collar crime? In my view, many of the people responsible deserve to be in gaol. If any of my constituents stole an equivalent amount, they would end up in the courts and then in gaol. Why is white-collar crime treated more leniently than other types of crime?
Does the Minister agree that those firms which do not put things right within a very short time should be disqualified from participating in stakeholder pensions and frozen out of the industry altogether as unsuitable? Should not the brand of Cain be stamped across the forehead of their chairmen to ensure that they do not do business in future? That is the only way that the companies will take the Minister's strictures seriously.
§ Mrs. Liddell
I see that my hon. Friend is behaving with his customary moderation. Indeed, the nicest thing that has been said about me in this episode is that I have been mealy-mouthed.
The action that I am proposing today will guarantee that those responsible for the running of companies involved in mis-selling will themselves pay a penalty if they do not meet the targets and ensure that redress is made.
§ Mr. John Swinney (North Tayside)
I support the Minister's statement but would like to ask two questions. First, when tackling networks like DBS, have the Government considered differentiating between the company or network and individual agents, some of whom will have a clear and commendable record? Secondly, in relation to stakeholder pensions, what consideration have the Government given to providing protection from excessive costs which will have to be borne by the consumer from products to be available for the market?
§ Mrs. Liddell
I shall deal with the hon. Gentleman's second point first. I understand that my hon. Friend the Member for Southampton, lichen (Mr. Denham), the Under-Secretary of State for Social Security, may be making a statement about stakeholder pensions soon. I have had lengthy discussions with him about the lessons that have to be learned about the mis-selling of stakeholder pensions.
There have already been fines on networks as a consequence of their failure to meet targets. They have been disciplined by the regulatory authorities. Regulation covers the management practices that networks and, indeed, individual financial advisers have been using. There are many lessons to be learned from that. The regulators are conscious of cases in which discipline may need to be applied; indeed, that discipline has been applied.
§ Mr. John Smith (Vale of Glamorgan)
As someone who was actively involved in a campaign to discourage people from giving up their occupational pensions for private pensions, I thank my hon. Friend for her statement on behalf of my constituents. Does she share my view that the previous Tory Government were effectively guilty of conspiring to rob millions of British people of large chunks of their life savings, in that they created a climate that encouraged mis-selling and then did absolutely nothing when the problem was discovered?
§ Mrs. Liddell
I am grateful for my hon. Friend's thanks. The Government will really be thanked when all the cases of mis-selling have been resolved. Yes, the climate at the time did encourage it to happen. The devil-may-care, get-rich-quick days of the Thatcher Government certainly encouraged the problems—[Interruption.] As some of my hon. Friends are saying from a sedentary position, some Opposition Front Benchers have a specific responsibility for what happened.
§ Mr. Paddy Tipping (Sherwood)
Will the Minister arrange for discussions to be held with both miners' pension schemes? In the light of the information that she will be given, that 7,000 miners can be identified—their addresses are known, as are their pension shortfalls—will she take quick and severe action, with the regulator, against companies such as TSB and the Prudential, which seem unwilling to set matters right?
§ Mrs. Liddell
I am conscious of the difficulties that are being experienced in some cases with occupational pension schemes, and I have heard what my hon. Friend has said. There have been some improvements in the information available from occupational schemes 163 and some companies—for example, the Pearl Assurance—are making their occupational pension scheme databases available, free of charge, to other companies. That is a very useful development.
At the start of this year, however, there were considerable difficulties with occupational pension schemes. Many of those difficulties have been resolved, but I will certainly be vigilant and do what I can to assist with the occupational pension schemes that my hon. Friend mentioned. I have heard the point he has made.