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8.50 pm

Mr. Ian Taylor (Esher) : This has been an extremely good debate which has demonstrated a great deal of expertise on the Government side of the House. No amount of jibing by the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) will cover the lack of real knowledge of the issue that has been evident in some quarters of the Opposition. Lack of knowledge does not help the consumer. I immediately declare my interests, which are recorded in the Register of Members' Interests. I advise the Commercial Union and Barclays de Zoete Wedd Investment Management. I happen not to advise them on insurance, as that is not my field of expertise, but on economic affairs. In any event, I am not speaking for either organisation this evening. Thus I have no embarrassment in declaring my interests. If some Opposition Members were capable of being retained by large companies the quality of debate on their side might be improved.

The difficulty that has been evidenced is that many Opposition Members are against long-term capital accumulation and are therefore hostile to the principle of private pensions. The problem is profound. It is not the main subject of this debate, but I draw attention to something that influences the way in which people think whenever these problems emerge. There is a problem in relation to transfers out of occupational pensions and SERPS into private pensions--that is what we are addressing today--but there is nothing inherently wrong with private provision. It is very important that that be recognised and underlined.

Another very important point is that, looking forward 20 years, it is almost impossible to conceive of any provision by the state out of current revenue--by which I mean a year's taxation--being sufficient in terms of pensions. In other words, we need means other than state provision to enable people to have a tolerable life after retirement. Those problems will not get any easier, partly because of the changing age profile, which I do not want to over-stress. The hon. Member for Newport, West (Mr. Flynn) shakes his head. I hope that he will continue to shake his head after his retirement, when there will be a relatively much smaller working population.

Mr. Flynn : Will the hon. Gentleman give way ?

Mr. Ian Taylor : I am conscious of the time, but I shall give way once to the hon. Gentleman as I have mentioned him.

Mr. Flynn : As I said, there is no demographic time-bomb to justify this. If it is not now possible to provide a decent pension out of public funds, why was it possible for the 30 years following 1945 ?

Mr. Taylor : The argument about a demographic time-bomb will continue for ever. The hon. Gentleman should consider whether state benefits alone have ever been sufficient. Many of us would like pensions to be much higher. The problem arises in relation to the taxability of the public. Bearing in mind the degree of people's readiness to bear taxation, we shall never achieve pensions sufficiency. My point is that the situation will get worse and that there will be more reliance on personal pensions.

Another reason for the need for personal pensions, which has been mentioned by one or two hon. Members, is the change of jobs during the expected working life of any

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person. Indeed, in this respect the situation may become quite dramatic. The experts now say that a young person starting work can expect to change his job between 10 and 20 times during his working life. In those circumstances, an occupational scheme alone would not be sufficient. This is a real concern. People need to think very carefully about the sort of personal pension provision they make. Occupational pensions have drawbacks. I shall not go into those, as I intervened during the speech of my hon. Friend the Member for Bournemouth, West (Mr. Butterfill).

There is no doubt that any personal pension scheme involves risk. Every scheme must carry that health warning. The public should understand both the benefits and the risks of personal pensions. There are benefits that derive from funding, but there are risks attached and some of the risks have been discussed during the debate.

In addition, considerable mistakes were made during the 1980s. Before becoming a Minister, the Economic Secretary to the Treasury, who will reply to the debate, was a very outspoken but constructive critic of the whole process of the Financial Services Act. I pay tribute to the work that he did when that legislation was going through its Committee stage. There have been mistakes. Clearly there are difficulties in the whole question of transfer out of SERPS. This is too big a subject with which to deal in great detail, but I have to say that the savings will be much smaller than was anticipated. Here we have a matter to which the National Audit Office has drawn attention. There will also be continuing problems relating to people's ability, under the Social Security Act 1986, to opt back into SERPS. I fear that any savings that the Government hoped to make over a period will be reduced unless some of the incentives are age-related. Thus, the Government must think very carefully about the way in which they target further incentives to contract out. The second area of mistakes relates to transfers out of occupational schemes, and the third concerns the inadequacy of explanations about maintaining adequate levels of contributions to pension schemes. It is one thing to start properly, but if contributions are allowed to decline, problems about the adequacy of the fund will clearly arise. Despite tax rebates of £6.9 billion between 1987 and 1992, there may not yet have been an adequate shift to long-term savings for people's retirement. Hon. Members have not focused on that additional worry today.

The size of the problem is in dispute. Part of the reason for this is that the figures are not fully available. The Association of British Insurers has estimated that more than 6 million personal pensions have been sold since July 1988--about one third of them through independent financial advisers and the rest through tied representatives. Transfers and opt-outs from occupational pension schemes account for nearly 10 per cent. of the total. That is a useful background, but it is difficult to know the extent to which bad advice has been given in any of the new schemes. FIMBRA issued a report dated January 1994 which records a high level of evidence on client files that there was inadequate documentation on whether the client was made

"fully aware of all relevant matters to enable him to make an informed decision when comparing the accrued rights in the occupational scheme with the likely benefits from the receiving plan."

That is not sufficient evidence that proper attention was not paid. It is very difficult to get an estimate from the negative to the positive

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Mr. Michael Clapham (Barnsley, West and Penistone) : Will the hon. Gentleman give way ?

Mr. Taylor : I should love to give way, but I am conscious that several other hon. Members wish to follow me. The hon. Gentleman must forgive me. I am not ducking out of it, but I am trying to be kind to those who wish to get in on the debate.

The Association of British Insurers has estimated that the final cost for insurance companies will be between £200 million and £300 million, rather than the figures of over £1 billion which have been widely touted. Final estimates must wait for the SIB guidelines which will be made in terms of being able to assess the problem. Market performance will of course have an influence on the final figures in any event.

On SERPS, the Coopers and Lybrand Deloitte report stated that it is

"unlikely that insurance companies will need to make provisions in their annual accounts for bad advice in respect of individuals who have contracted out."

In no way do I fall into the trap set by the hon. Member for Hackney, North and Stoke Newington--that I am insensitive to the problem. It is agreed that there is a genuine problem. But there is no point in exaggerating the problem and causing concern to or scaring people who have taken out a private pension.

There is also a problem of regulation. Have we yet got it right ? I do not believe that a statutory regulatory formula is a panacea. There are plenty of points of evidence that indicate that the Government are fallible in regulation. A professionally related procedure--what is known as self- regulation--within a statutory procedure seems to be the right way of going ahead.

However, as some of my colleagues with a greater knowledge of those matters have pointed out, a self-regulatory procedure has to be effectively run. In my mind, it has not yet been so. There are clear difficulties and many regulatory authorities had not got their act together by the time that there was a big push for personal pensions. Many of them did not seem to realise how much of the problem they should take into account. Many of them were swamped by the numbers and therefore were giving the problem inadequate attention. The setting up of the Personal Investment Authority is welcome, but it has been clearly set back by internal difficulties. That is not a satisfactory arrangement and the public are right to be concerned. I look forward to the comments of my hon. Friend the Economic Secretary on that. I am not advocating a move to a different system--just that the present system should be more efficient.

We must help those who are disadvantaged by mistakes that have been made. There needs to be some procedure that the public can use with confidence to enable them to assess whether they have a problem. In many cases, that is one of the biggest difficulties.

I have noticed in some newspapers that one or two independent bodies are, on a fee basis, prepared to assess people's personal pensions to see whether there is a difficulty. Arrangements should be made by the industry to ensure that every person who has made the transfer is visited by someone independent of the insurance company to give quick advice on whether there should be a case for compensation, to help complete forms stating the basis of the claim, to sort out documents, to advise on the

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appropriate claim and the level of compensation and to assist in dealing with the insurance company and pension trustees.

Those are basic things which otherwise may be rather too complicated for personal pension holders to take on. There will have to be some pressure through the industry to enable occupational schemes which people have opted out of to take people back, although there will be difficulties if the trustees find that they cannot take back people who have subsequently left a company. That area must be clarified, and I hope that it is given urgent attention by the industry.

For the future, it is clear--I echo some of the speeches made earlier--that employers must provide more advice to those in occupational schemes, and explain to them the full benefits that they are currently obtaining and which they could put at risk by transferring prematurely to a personal pension.

The issue of advisers working for commission only has already been dealt with exhaustively.

The suggestion by my hon. Friend the Member for Havant (Mr. Willetts) that employers should be in a better position to make contributions to personal schemes so that there is almost a joint venture is a good way forward.

Finally, training is absolutely essential. There should be training for the sales forces of insurance companies and it should be made sure that all salespeople can pass set examinations. The Prudential may be worried about transferring to the PIA because its sales force may not meet the examination requirements, but I think that the Prudential has a lot to answer for in its current activities. There should be more training and preparation for the trustees of pension schemes. I noticed with interest a proposal by Sir Martin Jacomb that the Securities and Investments Board should issue a code of conduct for trustees which would be enforced by the chancery courts. Those are positive ideas. The industry is looking at its problems. There is no doubt that the events of the past year have created a difficulty. We should certainly ensure that people who transferred their pensions on sound advice are not encouraged to revisit that decision. Where people were given bad advice and, as the Association of British Insurers has said, have been materially disadvantaged as a result, the problem should be rectified. Everyone in the industry should co-operate in rectifying it so that dependence on personal pensions in the future is not undermined by a lack of confidence now. 9.4 pm

Mr. Michael Connarty (Falkirk, East) : I found it strange earlier to hear a Conservative Member talk about risk and how people should be more capable of dealing with risk on a personal basis. When one thinks that we are faced by the party of the Lloyd's losers and a Government who, like some mad member of Gamblers Anonymous, threw money at the pound to the tune of £8 billion to try to keep it afloat, one doubts whether the Government could tell anyone about taking risk sensibly.

I wish mainly to speak to the part of the motion that states : "That this House deplores the widespread abuse and unscrupulous techniques used to sell private pensions, which have prejudiced individual clients and induced them to leave

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occupational pension schemes and the State Earnings Related Pension Scheme".

In speaking tonight, I have to put on record my thanks to my hon. Friend Member for Southampton, Itchen (Mr. Denham), who has assiduously raised this problem in the House in the past couple of months and with whom I have had a number of conversations. I wish to focus particularly on the problem of mis-selling because that is what this is about. That is what has been going on under the present regulations.

Under the rules laid down by the financial regulator, sales people have a duty to provide the best advice possible and to sell only suitable financial products. Under almost no circumstance can I imagine that the best advice would be to leave a final-salary occupational pension scheme with a current employer for a private pension. Yet 500,000 people are calculated to have done just that. Employers usually make additional contributions to an occupational scheme. Occupational schemes often provide additional benefits not available with a private pension. The pension received is guaranteed.

The transfer value--the sum of money that one can move--is often worth a lot less than the value of the contributions to the occupational pension fund. So why do transfers occur ? What inducements were offered to encourage people to leave such schemes ? We must come to the conclusion that, with the regulations in place at the moment, mis-selling took place. We must worry that without stringent Government regulation, mis-selling will continue to take place.

The case is not so clear when an individual transfers funds from an employer's scheme into a private pension after he has left the scheme. In a number of cases, it would still be advisable to stay in the occupational scheme and transfer to the new employer when employment is found, but many people left in that circumstance also. We have also been told that a small group of people were affected. When one is talking about what my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) described as often the single biggest financial transaction in people's lives, it should be deeply worrying that 500,000 people took that decision. It is not a small number. It is a large number. There are only 5 million people in personal pensions schemes, so 10 per cent. of them left a safe occupational pension scheme. Something was certainly going wrong.

Where the Opposition are locking horns with the Government is over the general background of the bribes given by the Government costing, we are told, £18 billion. I am used to that. I have just been debating, in the Committee considering the Local Government etc. (Scotland) Bill, water and the water transfers. It cost the Government almost £12 million to transfer water from public into private hands. It seems that the Government are good at bribing people to take on their ideologies.

Then there is the problem of commission selling and particularly sole commission selling. Commission is the only source of income for the person who has been told in sparkling adverts, "Your life can be like this : £40,000 a year and more ; a house in the country." They have to go out and keep meeting the targets of their company or the broker for whom they work or they will be out of a job. I believe that that is what drove people to mis-sell. Unless we regulate against that, we shall never stop it.

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The Securities and Investments Board investigation has been referred to. On 8 December, the SIB announced that it was reviewing the position. The KPMG study came out on 16 December.

We have had some dispute about the facts, but only 9 per cent. of the policies sold totally complied with the regulator's rules. If that is not an indictment, I do not know what is. Fifty-four per cent. were unsatisfactory. We have had disputes about whether they were unsatisfactory because they did not fill in the form correctly, forgot to send back some records or forgot to keep a piece of paper that they should have kept, or whether it was something more serious. The fact is that on neither side of this Chamber can hon. Members give a definitive definition of that--54 per cent. were unsatisfactory, 8 per cent. were suspect and 29 per cent. were unsatisfactory and suspect.

The moderate estimate of the number of people who suffered is 500, 000, but there is no way of knowing for sure, basically because 83 per cent. of the cases, as the Securities and Investments Board reported, have insufficient information to tell. That must tell us something about the atmosphere in which people operate when they take out a pension. That is not something for which the Government or the industry can pat themselves on the back. That situation should not have existed ; there should have been regulation in a much more disciplined way.

There is no way of knowing how many individuals involved were opting out of the current scheme--how many people were actually in work in an occupational pension and were persuaded to leave that safe haven and go into the situation which they are now in, where they cannot guarantee an adequate pension for their old age.

Mis-selling basically takes place because of the drive for commissions. I remember many years ago in university--I would not call myself by any means an expert--running the student insurance bureau and working with the experts and doing it for no pay ; doing it because I thought it was a good idea. I think that such expertise is very important. We have heard that when people are selling on commission, they have been trained for eight weeks. Eight weeks is not adequate. They are trained for eight weeks and then sent out to chase their friends--the people in their former industries, such as the people who may have worked beside them in the coal industry. It then became like a chain letter, moving from friend to friend, feeling somehow that it was a reference and a recommendation and getting deeper and deeper into the same trap as had been set for the first members who went into the scheme.

The time scale of the years that it will take for the SIB investigation to come to pass is in the document. The letter that I received on 23 March had a huge list of the recommendations, but the time scale on page 25 was interesting. It says that the date is November 1994, which is as soon as is practicable, but the report mentions June 1995, with a review in September 1995. That is far too long and it is actually far too late for the 500,000 people who have been sold a pup by the people who were selling only on the basis that it was better for them, either because it had been tied to one company or because of the high commissions which they earned. Insurance companies whose sales people encouraged people to opt out will be liable for compensation. But if in 83 per cent. of the cases we cannot tie them down to the actual liability--why they were or were not at fault--obviously they will have difficulty getting that money. The calculation is that the bill will be £1 billion if compensation

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is paid in full. I do not see the industry coming forward and offering that £1 billion to compensate individuals. I have a funny feeling that the message that we got from some of those who are paid to speak in the House on behalf of the industry is : people should take their own risks and take their own falls. That is not good enough in a pension scheme, whether that pension scheme is sold under Government ideology in the private market, is put together as an occupational pension in a company or is the state earnings-related pension scheme, which I believe we should be giving people as a fall-back position.

The regulated insurance companies have said that they were optimistic about the growth rates in their estimates. I suggest that they must now be optimistic in their compensation calculations to make adequate recompense for the things that have been done. We have heard that people can opt back into SERPS. That is at least one bolt hole for which many people will be grateful, and I am sure that many will take it when they realise that it will not be as profitable to remain in a personal pension plan, with the administration charges and commission charges taken off before their investment is put into anything worthwhile.

The problem is with occupational pension schemes and the attempt to get re- entry into pension schemes. My hon. Friend the Member for Itchen has been doing a survey of companies and only two--British Airways and British Telecom--have said that they will automatically allow current employees to re-enter their schemes ; whereas every other company said that they would either not allow it or would allow it only at their discretion and, in most cases, with some restrictions. None would allow former members to re-enter. The coal industry is one example where former members who have retired or widows cannot re-enter the scheme and they have lost their benefits. Most schemes have rules that forbid re-entry. Only one--BP's--provided independent financial advisers to members thinking of opting out : in other words, advisers to provide a balance to the commission salesmen--to the people who are selling for tied companies and want to keep their target up because their job and future salary depend on it.

The Government have said that it is up to the companies, but--on behalf of those 500,000 people--I must say that that is not good enough. The Government must ensure that those people who have lost are adequately compensated. The Government must intervene in some way because they created this monster, which has caused a great deal of distress for people with pensions in the private sector.

The Government, together with the pension sales force and the company, are culpable and they should ensure adequate recompense and direct regulation. It is not good enough for the Government to say that insurance is just another market. We are talking about people's long-term futures and their security in old age. If the Government want to have any credibility, they must consider moving in that direction.

We have heard of the LAUTRO actions, which restrict the number of people selling in the market and ensure that they are better educated. That probably means that they will not sell bad policies through ignorance, but it does not mean that the tied-policy selling will stop. It does not mean that selling on commission will stop, or that the idea of getting the bigger car and house and faster life style will not be depicted in the advertisements, which will still say, "Do you want to be a self-made entrepreneur ? Come and

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join our company." What that means is selling people things on commission and if they are selling insurance, it will be sold just as hard as cars or anything else that people buy. However, it is different with cars, washing machines and hi-fis. We are talking about people's long-term security in their old age.

I suggest that the Government should look seriously not only at their ideological differences with the Opposition but at the ways in which we could meet and do something for the 500,000 people who find themselves in trouble, the 2.4 million people whom Coopers and Lybrand Deloitte estimates to be in trouble and facing a negative situation and possibly, with direct regulation, ensure some credibility for the insurance industry.

9.16 pm

Mr. Michael Colvin (Romsey and Waterside) : I shall deal with the narrow subject of regulation, especially self-regulation. I am not an expert and I appreciate that there has been much expertise in evidence in the Chamber today. We have heard from many hon. Members with interests in the industry, either as practitioners or as members of the Treasury Select Committee and the Standing Committees that dealt with legislation on such matters.

I agree with the Government on the principle of self-regulation, which is the best method because in that way one ensures the maximum amount of expertise as close to the regulators as possible. Regulation is a very complex task and widespread practitioner input is essential for it to stand a chance of being carried out effectively and efficiently. I hope that there will be a change in the constitution of the Personal Investment Authority board, to give it a majority of practitioners.

The Government's aim of creating a single regulator, in the form of the PIA, for the retail financial services sector is the right one. The elimination of regulatory arbitrage would a fundamental step forward for consumer protection and my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) welcomed that. Those arguments were developed by Sir Kenneth Clucas in his report two years ago, but I am worried that the proposals have since been wrongly constituted. It seems that the original intention of creating a level playing field failed to materialise. The present system fails to apply consistent standards across the board. For example, the bank assurance sector is not subject to the compliance and training requirements imposed in the independent sector. Also, it does not require individual registration, which independent financial adviser members of the authority will continue to carry.

The PIA promised comprehensive and permanent funding for the investors' compensation scheme, but that has not happened. The PIA expects the present figure of 7,200 IFA companies to be whittled down to 5,800 in the new authority. That means a loss of about 1,400 companies and those will probably come from the independent sector, as it is highly unlikely that either the banks or insurance companies will be refused membership.

The PIA will not deliver the promised step up in standards that we have read about. That is not even a guarantee that standards will remain at current levels.

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Developing professionalism in financial services is the best way of ensuring the health and probity of the sector. However, the PIA has rejected the training and competence proposals that would ensure that step change in approach. The admissions process would be an invaluable opportunity to vet all those operating in financial services, but the PIA has dropped its original intention to implement individual registration, and I should like to know why. It seems to me that the only step-up guarantee that has been given is in the costs of regulation, so let us not be under any illusions about that. Increased costs will, in the long term, have to be paid for by the consumer. The consumer has a right to be protected against fraud and malpractice--we all accept that--and the consumer interest should be the guiding principle of any regulatory system, but, if the costs are to increase, the consumer should be guaranteed a similar increase in protection.

I hope that the Minister will tackle those anxieties when he replies to the debate, but the key question is : to whom will the PIA be accountable ? Some of us are not satisfied with the PIA reporting to the SIB. The PIA and SIB seem to be trying to move away from self-regulation without bothering to refer to Parliament. As a result of that lack of accountability, some members of the industry have begun to suggest a statutory regulatory regime without fully understanding what they mean.

There is an obvious duplication of effort and interest between the PIA and SIB. I believe that their roles should be separated. I should like the PIA to be created a designated authority. It would then have to report directly to the Treasury, while it would be released from its overlap with the SIB.

I believe that the PIA should be headed by a fully independent chairman, free from industrial ties. I think that it was LAUTRO who told the Finance and Services Select Committee earlier this month that there is no one left in the industry with a totally clean record and the day-to-day responsibilities should be overseen by a chief executive who has a thorough and developed understanding of the financial services sector.

I hope, therefore, that the Treasury will delay the implementation of a single retail regulator--the PIA. That would require the extension of the life of FIMBRA and LAUTRO--a task which I believe that they are more than ready to perform. The Government should not give a commitment to the PIA in its current form, the industry should not have to join the PIA in its current form and the consumer should not have to accept the PIA in its current form. The omissions from the PIA's prospectus should be rectified to reflect the original spirit of the single retail regulator that was proposed two years ago. Until that is done, I do not believe that anyone can apply to the PIA for recognition with real confidence.

I want the step change in self-regulation that we have heard about to be a step forward--not, at the very best, a step sideways. 9.22 pm

Mr. Alistair Darling (Edinburgh, Central) : I agree with the conclusion that the hon. Member for Romsey and Waterside (Mr. Colvin) has reached, although not the reasons for it, and I shall discuss the Personal Investment Authority later.

This has been an extremely useful debate because hon. Members on both sides of the House agree that a debate on

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regulation is long overdue ; that is one reason why the Opposition have devoted one of their Supply days to the discussion of this matter.

We are discussing, first and foremost, a matter of public interest. A pension is probably the most important thing that someone will ever buy. It is security for perhaps 20 to 30 years following retirement--sometimes almost half a lifetime. Buying a pension is more important than buying a house. We are also discussing an important industrial interest, however. Two and a half million people are employed in that industry and it produces 18 per cent. of the country's gross domestic product. It is therefore important that Parliament gets the regulatory system right. The problem with pensions is that the wrong choice made now may not become apparent for 25 to 30 years. Perhaps the only decent thing that Robert Maxwell did was dramatically to remind people that their pensions are vulnerable, and that nothing can be taken for granted.

My hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) discussed pensions. I shall discuss regulation, which has dominated much of the debate.No Government and no regulation can ever take the place of an individual's judgment. However, a Government can and must ensure, first, that there is choice and competition in pension provision--that means providing knowledge--and secondly, and perhaps more important, that there is effective and efficient regulation. The issue before us tonight is not one of private against state provision ; that is a false division. This is not the place to decide whether or not--or how many--pensions were mis- sold. That should be the function of an independent and detached regulator ; it is not an issue which we can decide in the House tonight. The question before us is whether we have the confidence in the system of regulation that the Government have set up. I think that the answer for the Opposition, for a growing number of people in the industry and for the public is that we do not have confidence in a self-regulatory system. For that reason, we believe that the Government should bring it to an end.

It is interesting that Conservative Members blamed the regulator but said that the system was all right. That seems to be inconsistent. The problem is that people want to make an informed choice, but are unable to do so. Far too many people may have become prey to unscrupulous salesmen or the casual approach of management. We should not always blame the insurance salesmen. It is evident that the management of some of the insurance companies must have known what was going on, particularly in the late 1980s. It is unfair and wrong simply to blame the infantry--the generals must take their share of the responsibility.

We currently have ineffective and expensive self-regulation under the Financial Services Act 1986. That self-regulation has been dominated by the self-interest of certain vested interests in the trade. Those same self- interested parties fought the disclosure of commission and have been going about trying to talk down any concerns about the KPMG study into the possible mis-sale of up to 500,000 personal pensions. Those same self- interested parties are now only reluctantly facing up to the fact that the wrong advice was given in far too many cases ; I do not know in how many cases, but I know that even the most conservative estimate shows that far too many people were given wrong advice in that crucial sector.

For most people, a pension provides security in retirement. A decision about pension provision is probably

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the single most important decision that a person ever takes. But for the Government in the late 1980s, pension provision provided an opportunity to allow a lethal combination of inadequate regulation and the promotion of a pensions free-for-all. It provided an opportunity to peddle Tory dogma. Some unscrupulous companies saw private pensions as providing rich pickings from vulnerable people.Self -regulation has failed to protect the public interest and must be replaced by effective and efficient direct regulation. I do not mean regulation by the Government or the civil service ; I mean direct regulation to end the nonsense of self-regulation. In order to understand what happened in the late-1980s, it is important to remember what was happening with pensions. In the same year as the Government handed over regulation to private interest, they were vigorously promoting the sale of private pensions through the Social Security Act 1986. The Government spent £1.2 million of taxpayers' money on a dramatic advertising campaign.

It is extremely silly and stupid for the Secretary of State and the hon. Member for Havant (Mr. Willetts) to say that the Opposition are holding this debate because we are against private pensions. We believe that state and private provision are complementary ; they go hand in hand. I see the difficulty of that the hon. Member for Havant faces. He was director of the Conservative research department during much of that period in the late 1980s. Rather like a child who is reluctant to give up his comforter, many Tories are reluctant to give up the dogma, which they have clung to, notwithstanding the fact that it has failed.

State and private provision are complementary. It is necessary to make an extremely complex series of calculations in order to reach the right decision about whether someone should opt for a private pension. It is abundantly clear that for many people, those calculations were never made-- or if they were, the wrong conclusions were drawn from them. We must ask why possibly up to 500,000 people were wrongly persuaded to leave their occupational schemes. Common sense tells us that two people contributing to a pension scheme is better than one.

We must ask why possibly 2.5 million people were wrongly advised to leave SERPS. Despite what the Secretary of State said about the Coopers and Lybrand advice, it was given. There would have to be good reasons to persuade elderly people or those on low incomes to leave SERPS and go for private pensions.

Let us consider the events in the mid-1980s that led to the difficulties-- to so many people being exposed to salesmen who depended on commission to make ends meet and on sales to keep their jobs. We should remember that the public are paying for the mistakes made by the industry. The public--the policyholders--have to pay for the failures of Tory dogma, which was put into practice in the late-1980s. When we consider those events and what Ministers were saying, it is not surprising, as many of my hon. Friends have said, that people were gulled into believing that private was always best. When he was the Secretary of State for Social Security, the present chairman of the Tory party circulated a press release dated 13 April 1988 :

"During the next few months there will be dramatic new opportunities for the public in pensions. Everyone will now have the opportunity of a pension of his own . . . Every worker . . . needs to realise the new opportunities that there will now be."

The advertising campaign showed an individual strung up in a straitjacket, which emphasised the Government's

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belief in the importance and desirability of private pensions. It was not until four years later that the Government started printing advertisements on a much reduced budget that emphasised that it was important to read the small print. It is not surprising that many people made the wrong decisions or that many in the industry saw an opportunity that they had never had before to sell pensions to people who should not have bought them.

We accept that, for many people, it was appropriate to go into private pensions. There was nothing wrong with that. The choice of many others to do so, however, was ill-advised. Those are the people who will suffer. If a mistake is made, it may take many years to discover it and many years for the contributions to be made up and for the rightful position to be reached.

It is interesting to consider the comments of the Prime Minister in 1986, when he was just starting his first job as a junior Minister with responsibility for social security. Although he expressed concern that there might be a problem with mis-selling pensions, he said that he was confident that

"the Financial Services Bill will provide a cooling-off period."--[ Official Report, Standing Committee B ; 4 February 1986 ; c. 27.] It was eight years before the cooling-off period was applied to the sale of personal pensions--eight years during which many people were wrongly sold pensions and were made to suffer for the rest of their lives as a result.

The Government have to accept that, because of the dogma that they peddled in the late-1980s, many people may have been sold policies that they should never have bought. The Government must accept a major responsibility for the climate that prevailed at that time and for the fact that many people may have lost substantial sums of money. Of course we blame unscrupulous insurance companies. Many insurance salesmen were unscrupulous in their techniques. The problems, however, would never have arisen if the Government had not created the lethal combination of inadequate regulation and a Government-sponsored promotion of a pension free-for-all. There were warnings at the time. It is all very well for the hon. Member for Bournemouth, West (Mr. Butterfill) to say that no one knew. We hear the same excuse for the tax increases. We are told that no one knew that the economy was in a mess. Just as there were people who knew that the economy was in a mess, there were organisations, including the CBI, who warned in the mid and late-1980s what would happen with a pension free-for-all. Many in the industry also expressed concern, as did the National Association of Pension Funds. The Government deliberately chose to ignore those warnings because they did not want to know. They peddled their dogma with reckless disregard for the consequences of their action.

The Securities and Investments Board is already investigating the possible mis-selling of 500,000 private pensions to those who were persuaded to come out of the occupational schemes. It is interesting that many in the industry and many self-regulatory organisations such as FIMBRA and LAUTRO are extremely resentful that Andrew Large of the SIB decided to make that inquiry public. That speaks volumes for the weakness of self-regulation dominated by trade interest. It is fundamentally important that the regulatory system should

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have the public's confidence. It must be seen to be impartial and detached. It is singularly unhelpful when we see the self-regulatory organisations appearing to act as trade organisations and trying to play down what in anyone's view is a major scandal. I do not know how many people were affected, but I know that hon. Members on both sides of the House agree that there has been a serious problem. We shall not know the answer for some time. But for Conservative Members, and the Secretary of State who is no longer here, to say that it is all rubbish and is simply cover for Opposition Members seeking to attack certain pensions is grossly irresponsible

Mr. Butterfill : Who said that ?

Mr. Darling : The Secretary of State for Social Security said it during his brief appearance tonight. I understand that he had his mind on other matters. He is delivering the first Spectator lecture and it must have been a dreadful inconvenience to have to come and explain Government policies to the House before he pushed off. He tried to minimise the problem. It can do public confidence no good when the Secretary of State and some of the regulators attempt to rubbish the concerns that have quite rightly been raised. The SIB should also mount an urgent inquiry into the question of commission. Many hon. Members, particularly Opposition Members, have drawn attention to the problem, but all the training in the world and all codes of best practice will be undermined when salesmen are desperate for commission to feed themselves and their families and desperate to sell policies to keep their jobs. Some salesmen have been sacked for not selling enough policies. It is time that the industry faced up to the fact that, if that structural problem is not tackled, problems will increase.

Members of the public will increasingly look to the financial services industry to make provision for themselves, but, in turn, they rightly demand that the Government provide an efficient and effective framework of regulation, which does not exist at present. A growing number of people in the industry realise that the system is deficient and that confidence, which they need as much as the public, has been badly damaged.

A review of the regulatory structure is long overdue because we now have a dog's breakfast of regulation, which the hon. Member for Ryedale (Mr. Greenway) touched on. Had the hon. Member for Havant bothered to stay for the rest of the debate, he might have found his hon. Friend's contribution instructive.

It is absurd that the Personal Investment Authority must bid for members at the same time as negotiating with the SIB for recognition. While the PIA is making regulations, the SIB is also making regulations under which practitioners must work. That cumbersome duplication is expensive, and the expense must be borne by the public.

The PIA, due to open in July, has yet to start vetting some 6,000 applications, yet it says that it will examine each application individually. We shall believe that when we see it. It has still to agree its rules, regulations and qualifications, yet it wants people to join by 5 April.

Mr. Beith : The hon. Gentleman said that he agreed with the hon. Member for Romsey and Waterside (Mr. Colvin). Is he now saying that insurance companies should, like the Prudential, hold out and not join the PIA ? If so, what confidence can there be in the meantime, before a fundamental change is made in the system ?

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Mr. Darling : My position on the PIA is that I wholly welcome an opportunity to bring together LAUTRO, FIMBRA and bits of IMRO. My fundamental criticism of the PIA is that its roots are in a self-regulatory system that has failed. It is clearly a stop-gap rather than a permanent solution. I have spoken to people with all views in the industry and more and more believe that PIA can only be a stop-gap solution. They look to the Government, possibly in vain, for firm leadership on the matter. The public and the industry want a system that will last for 10 or 20 years and command universal confidence. One might have thought that that was not too much to ask, yet I do not suppose for a minute that we shall hear anything about it tonight.

As my hon. Friend the Member for Warwickshire, North (Mr. O'Brien) said, people are concerned about the PIA's chairman because he was chief executive of the Legal and General insurance company when it was fined a record £400,000 for gross breaches of LAUTRO rules on three occasions. It is not surprising that people wonder whether he is suitable to lead regulation of the industry. I note in passing that, in the same year as those fines were visited on Legal and General, it managed to raise its contribution to the Tory party from £28,000 to £40,000. Conservative Members may be grateful for that, but the public expect better and are legitimately concerned about the establishment of the PIA.

The time has come for us to recognise that direct regulation is necessary. By direct regulation, I mean regulation by the SIB which would be answerable to Parliament. The SIB board should have a blend of practitioner and public interest.Practitioners should have a substantial input into regulation, not least because the industry will pay for it. It is important to have people who know and understand the problems, but it is equally important for those people--both from the industry and the Government--to be seen to be impartial and detached. We should remember that the Government have a vested interest in covering up some of the problems that are of their own making. We need a board that is seen to be impartial and detached to police the industry, and it is high time we got that. We shall be publishing a consultative paper early in the summer, but, in the meantime, it is important that people realise that the present system is simply not working.

There is grave concern about the lack of training and the lack of competence. I agree with the hon. Member for Havant that ticking boxes and answering questionnaires is not an adequate check on whether proper advice is needed, but we need to imbue the industry with a greater a sense of long -term commitment and professionalism. We need the kind of professionalism that enables a salesman to say to a prospective customer, "No, you should not buy this policy," rather than attempting to sell a policy at all costs.

Direct regulation needs to be put in place now because it will be cheaper and more effective and will command the confidence not just of the industry but, more important, of the public. It will avoid duplication and the present nonsense of horse trading for membership and continually reacting from crisis to crisis. We ought not to be having such debates in the House ; we should have complete confidence in the regulator to investigate any allegations of wrongdoing, properly to police the industry and, above all, to enforce the rules and regulations without fear or favour.

There is a growing problem in the financial services industry. The pension transfer illustrates those problems

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