State Earnings-related Pension Scheme

HC Deb 15 May 1996 vol 277 cc447-9W

Mr. Matthew Banks

To ask the Chancellor of the Exchequer if the Securities and Investments Board has concluded its examination into the sale of personal pensions to those who would otherwise have remained in SERPS; and if he will make a statement. [29809]

Mrs. Angela Knight

The then Minister of State announced on 25 October 1994 by written parliamentary answer,Official Report, column 509–12, that the Securities and Investments Board would work with the Department of Social Security to investigate whether there has been widespread misselling to people who would otherwise have been contributing to the state earnings-related pension scheme. SIB is today making a statement on the outcome of its research. The results are striking, and I hope will be welcomed as positive evidence of the significant financial benefits personal pensions can bring to those who choose them.

Based on a sample, the research demonstrates that nearly all those who contracted out of SERPS stand to gain—and gain significantly—compared with the pension entitlements they would have had in SERPS. At least 96 per cent., and perhaps as many as 99 per cent., of the personal pension policyholders concerned stand to be better off—in most cases by between about 150 and 300 per cent. of the SERPS entitlement given up. That typically amounts to an extra £550 to £1,000 a year of pension rights in today's prices.

However, not all those who contracted out of SERPS are likely to share in this benefit. The research pinpointed a small minority who are likely to be worse off as a result. They may number as few as 1 per cent. of those who chose a personal pension instead of SERPS, and no more than 4 per cent. Where losses occur, they are likely to be very low—typically between £33 and £78 a year in reduced pension rights.

Of those likely to lose, most fall into the category of people with very small personal pension funds: for example, where contributions to the personal pension have ceased because the policy in question has been closed. Often the losses are associated with flat-rate charges by the pension provider, which can erode the value of the pension over time. That does not mean that everyone in this situation is bound to lose. If, for example, the pension policy is later revived, the losses may be wiped out. Those who have policies with providers who waive fixed charges in years where no money is received may not lose out at all.

In view of this, SIB has been exploring with pension providers what scope there is to help people in risk categories through altering charging structures or otherwise. I am pleased to say that action already planned by some firms should help to protect the position of vulnerable policyholders. This is a welcome step in demonstrating the good will of the industry. I challenge all firms to follow their good example.

The research published today makes it clear that a review of the kind currently being carried out for pension transfers and opt-outs would be out of all proportion to the scale of the potential losses. The scale and extent of the potential losses for those who contracted out of SERPS is in stark contrast to the evidence in relation to personal pension holders who had left occupational pension schemes. In the latter case, there was evidence of widespread misselling and loss. There is no such evidence in the case of those who contracted out of SERPS.

However, that does not leave those who may stand to lose without the means to improve their situation. Action is being taken to ensure proper information is available to all those who may be affected. SIB will produce a leaflet for policyholders in the autumn so that they are able to reach an informed view of their own position and on the courses of action that are open to them. Anyone who believes they are the victim of misselling has the option of making a complaint under the normal arrangements established by the Financial Services Act regulators.

This FSA protection, and the additional action that is planned, will ensure that ample help is available to all those who stand to lose from choosing a personal pension instead of SERPS to understand and address their situation.

SIB has acted with commendable thoroughness and diligence in pursuing its research, which places beyond doubt the very great success of the policy of giving people the option to leave SERPS, and demonstrates the very significant advantages of personal pensions for many people.