Pensions Mis-selling (Hansard, 30 November 1999)

§ Mr. A. J. Beith (Berwick-upon-Tweed)
It is a privilege to be able to round off the first day's proceedings in this very pleasantly appointed new Chamber. Moreover, it is a considerable advantage to Members to have a desk on which to distribute their papers in a case as complicated as this.
Had my constituent been Mr. T. Blair, he might have had less difficulty in resolving a case that has now lasted for nearly six years. In 26 years as a Member of this House, I have never seen a worse case of bureaucratic lassitude, incompetence, delay and serial buck-passing than this one. Its victim, Mr. William Blair, is a caring and patient man, who is amazingly calm and rational in the face of treatment that would try the patience of a saint. We have become good friends, as he has become a regular visitor to my constituency surgery over the years, during which we have tried to resolve it. I am grateful to yet another Minister for entering into the fray and trying to assist in dealing with a matter for which the Government have some responsibility, as they are seeking to sort out the mess left by pension mis-selling.
Mr. Blair was a miner in the Northumberland coalfield and a member of the mineworkers pension scheme. In the 1980s, the then Government loosened restrictions on company pension regimes and more than 5 million personal pensions were aggressively sold. Some advisers went round miners, nurses and other groups, trying to persuade them to take out personal pensions. I detect the flavour of that in a letter from the advisers in this case, Ridley Devine and company, of Ponteland, who wrote to Mr. Blair in 1989, to say: With no further increases and a fairly modest growth of 13 per cent., you would have £12,800 tax-free cash and a pension of around £100 a week. If the Economic Secretary could guarantee 13 per cent. growth on equity investments and pensions, she would be very pleased. The letter ends: I would also like to take this opportunity to wish you a very merry Christmas and a happy new year. Mr. Blair faced many years of anxiety following that letter and that advice. The only question that the advisers asked him was whether he could afford the premiums, which is in breach of all the guidance about how pensions should be sold.
Like many other miners in Northumberland, Mr. Blair had to leave the industry and he began working for Northumberland county council. He then transferred his Scottish Life pension to the Northumberland county council local government superannuation scheme. However, he discovered that, had he kept his miners pension and transferred it directly instead of transferring a personal pension, he would have been credited with more years of service than under the new pension, and been much better off in retirement.
Following that discovery, he approached me in February 1994. I offered to take up the matter with the regulatory authority, but he then appeared to make some progress, and the county council advised him to contact the mineworkers pension scheme. In December 1994, the pension provider, Scottish Life, confirmed that 41WH Mr. Blair had bought a pension from it, but insisted that Bain Hogg, the company that had taken over Ridley Devine, was responsible for review under the Personal Investment Authority rules. The PIA confirmed that to me. I wrote to the director of Bain Hogg, who passed the file on to the company's compliance officer. Bain Hogg then became Hogg Robinson Financial Services, regulated by the PIA.
In February 1995, I wrote to Hogg Robinson's compliance officer, whose reply anticipated a final response in two weeks. In March 1995, Hogg Robinson wrote to Mr. Blair requesting further details. In May 1995, it interviewed him, and had at least, by then, worked out that he was four years and one month short of pension entitlement. It wrote to the local authority superannuation scheme for an assessment of the benefits that he would have received. That takes us to May 1995, when Philip Smith, a director of Hogg Robinson, wrote to me: I wish to confirm that the case is proceeding quite quickly. In May 1995, Hogg Robinson offered to pay to Northumberland county council the amount that Mr. Blair had lost by not staying in the mineworkers pension scheme. However, Northumberland county council then put a spanner in the works by saying that it could not accept payments to boost pension entitlements and that Mr. Blair had therefore to transfer back into the mineworkers pension scheme. So after a year and a half, yet another impasse was reached. Hogg Robinson approached the mineworkers pension scheme and passed the case on to its northern executive director, and contact continued.
In August 1996, Hogg Robinson requested Mr. Blair's reinstatement into the mineworkers pension scheme, with an additional payment to be offered for stress and distress. A dispute arose between Mr. Blair and Hogg Robinson as to the amount to which he was entitled. Mr. Blair thought that £1,000 would be reasonable compensation and that that was the PIA-recommended figure. Now only £250 stood between Mr. Blair and a resolution of the matter.
Then a bombshell fell. Hogg Robinson's company secretary insisted that the company had no liability to reinstate Mr. Blair into the pension scheme because it had taken over not the share capital or liabilities of Ridley Devine, the original advisers, but merely its portfolio, and was therefore wholly unconnected with the people who gave the original advice. The papers then had to be passed to the PIA, with apologies for the appalling state of the file.
I then wrote to Colette Bowe—a name that you may remember, Mr. Deputy Speaker—who was at that time the chief executive of the PIA. She replied that she hoped that the PIA would be able to achieve a speedy resolution.
In March 1997, I again wrote to the Insurance Brokers Registration Council, the body that was now entrusted with the case and was reviewing the pension transfer. In April 1997, it completed its preliminary inquiries.
In June 1997, I wrote to the PIA to complain that it had still not resolved the case, suggesting that its handling of the case illustrated the hopeless ineffectiveness of the system of redress over which the PIA presides". 42WH It was at about that time that The Observer had reported that the PIA pensions unit had so far compensated only one victim of pension mis-selling. When Colette Bowe replied to my letter, she said that my comments were "misconceived and unfair".
At that point, I wrote to the right hon. Member for Airdrie and Shotts (Mrs. Liddell), who was then Economic Secretary of the Treasury, asking for her help in looking into the case. In September 1997, she replied that swift action was necessary in such cases and that she had met senior representatives of the life insurance companies and other bodies to insist that it be taken. Also in September 1997, the IBRC appointed independent accountants to review the file.
In December 1997, there was a new development. With the case still unresolved, Mr. Blair faced redundancy from his job. I wrote to the IBRC. The respondent replied that the IBRC was awaiting a report from its actuary, and that I anticipate that this may be forthcoming shortly.
By March 1998, I had heard nothing since that response from the IBRC in December 1997. Its independent reviewers of the case had provided estimates for benefits on the basis of redundancy, but as Mr. Blair had not been made redundant at that point they had to go back to the beginning again to work out a fresh entitlement.
In July 1998, the Government announced that they intended to abolish the IBRC, which gave the IBRC a wonderful excuse to pass the papers on to somebody else. At that point, I recruited the help of the hon. Member for Ryedale (Mr. Greenway), who was a council member of the IBRC. I am grateful for the time and attention that he gave to the matter. At about the same time, I requested a meeting with the new Economic Secretary to the Treasury, the hon. Member for Leicester, West (Ms Hewitt). Following that meeting, she wrote to the chairman of the Financial Services Authority about the case.
In the meantime, I again wrote to the IBRC, which, although it was about to be abolished, was still in existence. In March 1999, it confirmed that it had passed the file on to the FSA. Enter Mr. Howard Davies—another name that you will remember, Mr. Deputy Speaker. When I raised the matter with him, he said: The Unit hopes that they will be able to conclude this assessment within one month. However, he also said that it would have to be dealt with by the IBRC—which was of course in the process of being abolished. The FSA and the IBRC would have to discuss arrangements for meeting the costs of compensation claims from investors who did business with firms that the IBRC used to regulate.
The FSA then assured me that the assessment would be completed by mid-May 1999 at the latest. Of course, by that time I had heard nothing further about the assessment or anything else. I wrote again to Mr. Howard Davies, who assured me that the assessment had been completed, but that the FSA was awaiting the outcome of talks between the IBRC and the investors compensation scheme about how such claims would be dealt with. In July this year, the hon. Member for Ryedale, who has been involved in negotiations to establish such a scheme, informed me that the IBRC, the ICS and the FSA had agreed in principle a 43WH compensation scheme for investors such as Mr. Blair. The PIA is passing its pension files to the ICS. The hon. Gentleman made inquiries about the location of Mr. Blair's files.
By September, the ICS received the file, and it sent another set of forms to Mr. Blair to fill in—it appeared that he had to start from the beginning again. It told Mr. Blair that it would carry out a full investigation, which would be a detailed and lengthy process which may take some time". Its representative even said: Unfortunately, I am unable to give any specific time frame as to when we will be in a position to review your claim. Mr. Blair has waited for nearly six years and his case has gone through a series of bodies, but the body that is responsible for such matters cannot even give a time scale within which it will deal with the case. That ICS letter made me realise that I had to raise the case in the House or in Westminster Hall and take it further. Since then, Mr. Blair has had to agree to retire in January on grounds of ill-health. The case has acquired much greater urgency because his pension will form the basis of his retirement income.
Yesterday—surprise, surprise—the ICS phoned Mr. Blair to say that his case would probably be resolved on the basis of a gratuity because there were technical reasons why he could not be returned to the mineworkers pension scheme. In view of the history of the case, neither Mr. Blair nor I place any confidence whatever in such telephone assurances, although I notice that the file has been dug out and that someone might be working on it. However, no assurances are on paper, and I fear that even the offer of a gratuity will be snatched away.
If the gratuity is given to Mr. Blair, various questions need to be answered. Will it be index-linked? His original mineworkers pension would have been index-linked, if he had kept it. Will the gratuity include compensation for all the distress and anxiety that Mr. Blair has been caused for many years? We should remember that compensation of £750 was on the table in 1996, and that he has suffered three and a half years of further distress since then.
Howard Davies sent me a letter in April 1999 in which he said: any compensation paid to Mr. Blair will take account of all the delays he has experienced. I sincerely hope that someone somewhere will assure us that the ICS will be bound by Mr. Davies' assurance that compensation will be forthcoming.
I appreciate that the Minister bears no personal responsibility for this appalling state of affairs. However, she is responsible for regulation in such areas and for ensuring that the system works effectively. Clearly, the system worked hopelessly and was lamentably ineffective in this case. What has she been told will happen next in Mr. Blair's case? I am sure that she sought information on it—no doubt that is why he got a telephone call yesterday. Will she keep an eye on the case until it is resolved? Although she is not responsible for individual cases, this case is a vivid example of the way in which the system can go wrong. 44WH She should follow it through and ensure that the wrongdoing is put right. Has the case taught her any lessons about the system's effectiveness? I should be grateful for any assistance that she can give me and the long-suffering Mr. Blair.

§ The Economic Secretary to the Treasury (Miss Melanie Johnson)
I congratulate the right hon. Member for Berwick-upon-Tweed (Mr. Beith) on securing the debate and on fighting so hard for his constituent. Before I respond to his speech, it might be helpful if I remind hon. Members about the progress that we have made in tackling the pensions mis-selling scandal that we inherited when we took office. To some degree, that sets the scene for Mr. Blair's case, to which I shall return later.
The situation in spring 1997 was that firms had not given the review that was launched in 1994 anything like the necessary priority. The target was to compensate all priority cases—those who had retired or were close to retiring—by December 1996. However, by March 1997, only 15 per cent. of cases identified for review had been resolved, and only 2 per cent. had been compensated.
The Government wasted no time in getting to grips with the overall problem. In May 1997, the then Economic Secretary, my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), met senior executives from the 24 firms that were responsible for about three quarters of all cases to secure their personal commitment to giving the review a higher priority within their organisations. I am pleased to say that phase 1 of the pensions mis-selling review, which covers priority cases, is now almost complete. So far, more than 400,000 people who were mis-sold a pension have been offered, or have accepted, redress worth £2.7 billion. Firms now recognise that it is in their interests to complete any outstanding phase 1 reviews as soon as possible. The Government and regulator reinforce that message in their dealings. We have made it clear that firms also need to make speedy progress with phase 2. We will not tolerate the delays associated with the early days of the priority review; with the lessons to be learned from phase 1, there will be fewer excuses.
The Government have no plans to publish information on firms' progress on phase 2, as we did in respect of phase 1, but the industry is aware that we reserve the right to do so if necessary. We continue to support the regulator's action to ensure that all victims of personal pensions mis-selling receive appropriate redress.
The Financial Services and Markets Bill, on which I have just participated in Standing Committee deliberations, will deliver a regulatory regime that will make it more difficult for firms to mis-sell financial products. The Financial Services Authority's programme of raising consumer awareness will include the publishing of comparative information on financial products—the so-called league tables—and help consumers to make better informed choices. These measures are designed to ensure that scandals such as the mis-selling of personal pensions are not repeated. That is the most important lesson that we can draw.
Having listened to the right hon. Member for Berwick-upon-Tweed, I understand the frustration that 45WH he feels on Mr. Blair's behalf. Mr. Blair first took up the issue in 1994, and it is regrettable that he has yet to hear the outcome of his case, particularly given that it seemed close to being settled on two previous occasions. The Government are aware of the time that has been taken to clear up some cases. That delay is a result of the complexity of the process and the number of organisations involved. On the regulatory side alone, the organisations include the FSA, the Insurance Brokers Registration Council and its grant scheme, the Personal Investment Authority and the investors compensation scheme. Those are all dedicated organisations that have done good work to help and protect savers, but it is clear that people such as Mr. Blair have suffered unacceptably. First and foremost, he suffered because of the initial mis-selling of the pension. That was bad enough. He then suffered because of the time taken to resolve uncertainties about compensation. Would he receive redress? How much would it be? When would an offer be made?
Resolving complex cases such as Mr. Blair's was bound to take time, because the extent of the loss suffered needs to be quantified and an entitlement to redress established. However, such work cannot be done in a hurry without, for example, information from existing and past schemes. Of course, as the right hon. Member for Berwick-upon-Tweed clearly stated, the process has not been helped by the number of organisations involved and the manner in which they exchanged information.
Moreover, in this case, the pension was mis-sold by a small firm that went out of business several years ago. That necessitated some one-off detective work to establish what had become of the firm. Dependent on the outcome of that work is the vital question of whether Mr. Blair is entitled to redress from the investors compensation scheme.
That is the system that we inherited, and which continues to apply. To simplify the arrangements, the Financial Services and Markets Bill will establish a single financial services and markets compensation scheme, which will pay compensation to consumers who suffer financial loss when an authorised firm cannot meet its liabilities. That will make compensation easier and simpler to obtain in such cases.
All that is of little comfort to Mr. Blair. His case reached the existing investors compensation scheme in late August this year, and action can take up to six months. The Financial Services Authority's pensions unit sought to keep Mr. Blair informed about what has been happening this year. The ICS 1999 report acknowledged that Without establishing the insolvency of the firm, we are unable to take the claims further. This was, at times, a lengthy and cumbersome process". The case is being dealt with by the ICS and is at a final stage. It has sought to keep Mr. Blair fully informed on what is happening, and has been in touch with him in the past few days.
46WH I am pleased to be able to tell the right hon. Gentleman news of the results of the investors compensation scheme review today. The ICS is satisfied that Mr. Blair is entitled to receive redress. The amount of that redress, and the manner in which it is to be paid, remains to be finalised in detail. The purpose of that redress is to put him, as far as possible, in the position in which he would have been had the mis-selling not taken place. That is his right. ICS staff have spoken to Mr. Blair and discussed what form the redress might take. Usually, reinstatement or augmentation of the existing pension arrangement would be sought, although that might not be possible in Mr. Blair's case, for the reasons given by the right hon. Gentleman. That will be disappointing, but it is because of the policies adopted by his other pension schemes. Instead, the ICS will probably buy an annuity to compensate Mr. Blair for any future losses.
Mr. Blair was pleased to know that his claim was finally progressing. The ICS knows that I will continue to take a close interest in his case, and I also give that assurance to the right hon. Gentleman. Mr. Blair has had to wait far too long, and I am glad that the ICS has been in touch with him to provide good news.

§ Mr. Beith
Can the Minister confirm, or at least show an interest in, the compensation aspect, to which I referred earlier? Taking account of indexation means that putting Mr. Blair in the position in which he would have been is difficult enough. However, it is also important that the assurances given by Howard Davies and others in relation to compensation for all the delay and distress that have occurred are kept to by the ICS, which is not the body that originally gave them.

§ Miss Johnson
I am grateful to the right hon. Gentleman. I shall write to him in greater detail on the compensation issue, although I assure him that I continue to take an active interest in it.
It is a tribute to the right hon. Gentleman that he has fought so hard and long for his constitutent. Some hon. Members have not been in Parliament long enough to have fought for such a length of time, but certain cases have to be fought persistently. Any Member of Parliament who sustains a battle on behalf of a constituent for such a long period should be congratulated. In securing this debate, the right hon. Gentleman has achieved some progress. I hope that the case can soon be brought to a conclusion that is satisfactory to him and to Mr. Blair.

§ Mr. Deputy Speaker (Mr. Nicholas Winterton)
I hope that I can express the view that this first sitting in Westminster Hall has been constructive, interesting and civilised.