HC Deb 01 July 1997 vol 297 cc94-5W
Mr. Cousins

To ask the President of the Board of Trade if she will review the charging to policyholder funds of the costs of mis-selling of pensions by insurance companies. [3304]

Mr. Nigel Griffiths

[holding answer 16 June 1997]: The Department has been in regular contact with all life insurance companies on a number of issues arising from pensions mis-selling, including the attribution of costs.

In October 1994, in the light of SIB's publication of criteria and procedures for assessing whether compensation should be paid to individual pension policyholders, the Department made clear that each company would need to consider where the costs should fall on its funds; and indicated that, while the precise arrangements would vary according to the circumstances of each office, the Department considered the following general principles to be relevant: (i) With profits funds which, in normal circumstances, stand to profit front the sale of pensions business can reasonably be expected to bear a corresponding share of the costs associated with that business.

However, (ii) Compensation costs should not be regarded as a normal expense of the business for the purpose of assessing bonus rates; and (iii) The Department would expect proprietary offices to consider whether it is appropriate that sonic part of the compensation cost be met from outside the long-term fund, to enable the reasonable expectations of policyholders to be fulfilled.

The overall objective of this guidance was to minimise the risk that the costs of compensation would have an adverse effect on the levels of bonus paid to policyholders.

The Insurance Companies Act 1982 gives the Secretary of State powers to intervene in individual companies' affairs, to protect policyholders against the risk that the company may be unable to meet its liabilities, or —in the case of life and pensions business—fulfil the reasonable expectation of policyholders. The Department stands ready to use these powers, though on current evidence it believes that their use to impose a particular attribution of the costs of pensions mis-selling is likely to be justified only in exceptional cases.