HC Deb 16 November 1998 vol 319 cc360-1W
Mr. Stunell

To ask the Chancellor of the Exchequer if he will list the notifications he has(a) received and (b) approved of transfers of funds from life fund surpluses to compensate victims of pension mis-selling, indicating the insurance company and amounts concerned. [59449]

Ms Hewitt

The Government have looked very carefully at where the costs of compensation should fall, and have settled on a very clear and proper principle: the costs of compensating victims of mis-selling should be shared and borne by those who stand to share in the profit of the company. Hence, the burden is distributed between policyholders and shareholders.

There is no legal requirement for insurance companies either to notify or to receive the prior approval of the Treasury of their intention to use surpluses in life funds to compensate victims of pension mis-selling. Although the Treasury has no direct role in approving the use of funds for this purpose it does have a general duty under the Insurance Companies Act 1982 to ensure that insurance companies are able to meet the reasonable expectations of their policyholders. As the then Minister for Competition and Consumer Affairs, my hon. Friend the Member for Edinburgh, South (Mr. Griffiths), told my hon. Friend the Member for Newcastle-upon-Tyne, Central (Mr. Cousins) on 1 July 1997, Official Report, columns 94-95, the Treasury has issued guidance to companies on where the compensation costs of pension mis-selling should fall.

In order to monitor compliance with this guidance, companies were asked in October 1994 to provide Insurance Directorate with information about how the costs were to be attributed. The Directorate has also periodically asked companies to provide details of the compensation they have paid and the provisions they have made for future compensation claims. However, the information was supplied to the Treasury on a confidential basis and so cannot be made publicly available on an

Attribution of compensation costs in the case of proprietary companies
Source of funds within the company Number of companies Compensation paid up to 31st March 1998 (£ million) Provisions held for future compensation costs (£ million)
Long term fund (non-profit) 37 310 1,600
Long term fund (with-profit) 20 1,480 3,100
Long term fund (mixture of non-profit and with-profit) 6 50 320
Shareholder funds 4 15 75
Mixture of shareholder funds and long term fund 3 15 35
Indemnities 3 50 230
Total 73 1,920 5,360

Clearly, in the case of a mutual company, there is no alternative but for policyholder funds to be used to meet the costs of compensation. 16 mutual life offices had paid some £250 million of compensation up to March 1998 and had made further provisions of a total of some £800 million.