Financial Institutions: Commission Disclosure (Hansard, 13 January 1994)

§ The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)
My Lords, following a report by the Director General of Fair Trading, the Treasury required the Securities and Investments Board last July to bring forward proposals, for the disclosure of commission and, where commission is not payable, equivalent charges. Draft new rules on the disclosure of commission and other matters, including disclosure of the effect of total charges and expenses, were sent to the Chancellor before Christmas. The Government welcome SIB's prompt and thorough response and are studying the draft rules carefully.

§ Viscount Caldecote
My Lords, I thank my noble friend for that encouraging reply. Can he say whether the Government broadly support the proposal put forward by the SIB in its consultative paper? In particular, will the Government support the proposal made in paragraph 4 that investor protection must come first in any new arrangements that are made?

§ Lord Henley
My Lords, I can give my noble friend the assurance that the Government do broadly support the proposals from SIB. That is why we asked SIB to bring forward its report on the four aspects that we had some queries about last summer. Obviously, there are matters of detail that we would like to consider; and we shall come back to the issue when we have considered those particular matters of detail.

§ Lord Molloy
My Lords, I welcome the Minister's first response to the Question, which was a very good answer and will be welcomed by many people. What is the position if the investor, despite what the Minister said, is denied the information outlined in the Question? Can he indicate what an investor may be able to do in those circumstances?

§ Lord Henley
My Lords, after the new rules come into effect, which should be in July this year, with various transitional arrangements taking effect in January of next year, it will be a matter for the investor to go to the appropriate self-regulatory body to seek redress.

§ Lord Campbell of Alloway
My Lords, do the new rules envisage that these policies would be avoidable at the option of the investor unless the commission and set-up costs are truly declared? Is that the concept of the rules?

§ Lord Henley
My Lords, I am not sure quite what point my noble friend is making. Our concern was that some of the existing rules could be significantly anti-competitive and could not be justified by the need for consumer protection. That is why we directed the Securities and Investments Board to bring forward specific proposals on these issues and in particular to provide appropriate consumer protection.

§ Lord Wyatt of Weeford
My Lords, can the Minister say whether it is possible for the Government to take action on the scandalous situation in which many people were persuaded by false promises to desert their occupational pension schemes and to join some bogus, scheme?

§ Lord Henley
My Lords, that is another matter that the Securities and Investments Board will be looking at in due course. It is important to put this matter into perspective. Something of the order of 5 million personal pensions have been taken out. We believe that that is an enormous success. However, it is possible that half a million people could be affected. The next steps are very much for the Securities and Investments Board, with the life industry, to investigate those transfers very thoroughly, define the standards for sales and devise remedies. They have been asked to do that by July. It will then be up to them to do any further work that is 231 necessary on cases involving contracting out of SERPS, though here SIB has no evidence of systematic compliance problems.

§ Lord Eatwell
My Lords, is the Minister aware that the programme he has just described as a success has resulted in 3 million people out of that 5 million ending up with pension entitlements which have deteriorated as a result of their following the Government's advice? Is it not clear that the high commission and start-up costs associated with private pension plans are one of the reasons why 3 million out of those 5 million people, according to the Department of Social Security, have made such losses?
Are the Government aware that the efficient operation of a competitive market requires the widest dissemination of accurate and comprehensive information? Will the Government now establish an independent body to advise the public in advance of their taking out policies of the true costs and true security of public and private pension plans? To follow on from the remarks of the noble Lord, Lord Wyatt, will the Minister tell the House what plans the Government have to compensate those 3 million current and future pensioners who have suffered serious losses as a result of the Government's policies?

§ Lord Henley
My Lords, I simply do not accept what the noble Lord has said. The Government's personal pensions policy has been a striking success. As I said, some 5 million people, mainly young and mainly without access to employers' occupational schemes, took out those personal pensions. As a result they are now taking an active interest in their pensions arrangements, which they were probably not doing previously. We shall continue to promote an active pensions market in which people have choice between personal pensions and occupational pensions, whether final salary or money purchase schemes. We shall continue to offer what advice is necessary to all those in the pensions world, as the Department of Social Security does at the moment; and we shall continue to promote that successful story.

§ Lord Hailsham of Saint Marylebone
My Lords, are the Government in a position to say whether the proposals currently under consideration require primary legislation or secondary legislation? If the changes under consideration require primary legislation, will the Government undertake to further it in the next Session's programme?

§ Lord Henley
My Lords, I can give my noble and learned friend the assurance that no legislation, whether primary or secondary, will be necessary.

§ Lord Desai
My Lords, are the Government happy that the Personal Investment Authority seems to be suffering from the withdrawal of co-operation by insurance companies? Will the Government, either through the Securities and Investments Board or independently, do something to make sure that self-regulation is not sabotaged by the behaviour of insurance companies?

§ Lord Henley
My Lords, there has in fact been one resignation from the Personal Investment Authority. That is obviously a matter for regret. Membership of the PIA is not a matter for Her Majesty's Government, it is a matter for the Securities and Investments Board's judgment as to whether the public interest will be adequately represented when recognition of the PIA is sought in due course from the SIB.

§ Lord Aldington
My Lords, will my noble friend take the point of my noble and learned friend who sits in front of me a little further? If there is to be no legislation, what sanction will there be in the event of a policy being issued contrary to the rules which have been set up? Will it be valid? How could such action be punished? How could it be avoided? How could rights be given under such a policy?

§ Lord Henley
My Lords, it would be a matter for the SIB to set up the new rules under its delegated powers under the 1986 Act. It will then be a matter for those who feel that they have suffered as a result to go to the appropriate self-regulatory organisations to seek the appropriate redress.

Viscount Chelmsford
My Lords, I am totally sympathetic to the openness which the Question seeks. Has anyone offered the Minister a method whereby an insurance company, or an insurance company's agent, can adequately calculate the initial set up cost of a single policy in a manner that is equitable? If such a method has been devised—I very much doubt it—does it make any sense to put the expense for the insurance company against the income stream of an insurance broker? Are we not in danger of good intentions producing rather poor results?

§ Lord Henley
My Lords, I very much hope not. What we seek is openness so that the personal investor can see exactly what he is buying, make comparisons in the open market and make a fair decision as to which is the appropriate policy, should there be one, that he wishes to buy.

§ Viscount Caldecote
My Lords, will my noble friend agree that had the arrangements now proposed by the SIB been in force, the problem that arose recently over the transfer of pensions would have been minimised?

§ Lord Henley
My Lords, I think my noble friend is correct. I repeat what I said earlier in answer to the noble Lord, Lord Wyatt. The figure is only half a million out of a total of some 5 million people who we believe are affected. As I said, the next steps are a matter for the SIB.

§ Lord McIntosh of Haringey
My Lords, following the noble Viscount's question, does the Minister further agree that had the amendments proposed by the Opposition to the Financial Services Bill been accepted by government, they would have provided the protection that is now proposed, and this problem would not have arisen?

§ Lord Henley
My Lords, I was trying to put the point in perspective. It is possible that some half a million people have been affected out of a total of some 5 million people who have taken out personal pensions. I know that the noble Lord resents that. However, some 5 million people have taken out personal pensions to their own advantage and benefit.

§ Lord Campbell of Alloway
My Lords, is the Minister aware that without the sanction of enforcement there is no appropriate or adequate safeguard? As my noble and learned friend asked, this surely must be a matter of legislation. Without legislation, there is no protection. With respect, on the face of them, the proposals that he advances appear to be manifestly unsatisfactory.

§ Lord Henley
My Lords, I simply do not accept what my noble friend says. What he is implying is that self-regulation does not work. I should have thought that what I have said in my Answer, what has happened as a result of the Office of Fair Trading report and what the SIB has done have shown just that: that self-regulation does and will work.

§ Lord Eatwell
My Lords, although the DSS figures are higher, will the Minister tell us whether the Government plan to compensate the 500,000 people, on his own admission, for following the Government's advice and losing their significant pension rights?

§ Lord Henley
My Lords, where non-compliance with regulations has damaged individual investors, those responsible will take remedial action.