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consider. Otherwise, we may be stuck with the current position, whereby the Inland Revenue practice, which for all practicable purposes has virtually the same effect as the law, may prevent flexibility from being extended to occupational schemes.

As I understand it, under the present practice, a scheme would be approved only if the rules of a money purchase occupational scheme require that an annuity is purchased on retirement. Consequently, there is something to be said for changing those rules so that the Revenue will allow flexibility of the sort that we are discussing with private pensions. The Government's intentions are not at all clear. Given that the industry is entitled to rely on ministerial statements, it would be very helpful if the Minister could tell us what the Government have in mind.

Our amendment refers to two particular points, which must be emphasised. The first is the question of cost, which, if I am successful in drawing the Government on allowing increased flexibility for occupational schemes, may be less of a problem. At the moment, when people transfer to private schemes they incur a cost. Everybody knows that, when one transfers a pension, not only are there administrative charges, but, very often, the act of transfer means that other optional benefits provided by the schemes could be forgone. That leads me directly to the point made by my hon. Friend the Member for Bolsover (Mr. Skinner). Many people who transferred inappropriately in the late 1980s not only gave up their entitlement in their contract of insurance, but the optional bonuses which they never get under private schemes.

Clearly, cost is incurred if one has to transfer, which is why I emphasise again and again that flexibility must be universally applied unless there are very good reasons for not doing so. We should not do anything in the House to force the substantial number of people in good occupational schemes out of those schemes. To please the hon. Member for Carshalton and Wallington (Mr. Forman), we should not so heavily influence people that they are driven to the conclusion that transfer is the only way out.

As I said, the new regime of disclosure, which we very much welcome, will help because people will be able to identify their costs. However, perversely, I suspect that sales may be initially depressed when people receive their print-outs from their independent financial adviser or their insurance company and see the cost of buying a policy. The Government should be aware that substantial costs are involved.

Secondly, and perhaps most importantly, there is the question of risk. I said at the outset that added flexibility does not necessarily mean that all is good news for those who choose to defer their purchase, because rates may not improve and people may make bad decisions. Individuals must decide that for themselves.

Mr. John Butterfill (Bournemouth, West): Will the hon. Gentleman give way?

Mr. Darling: Yes, in one minute.

It is no part of a Government's function to try to substitute their judgment for that of individuals. However, individuals must know of all the pros and cons before they reach a decision and only an effective regulatory system can ensure that.

Mr. Butterfill: The hon. Gentleman will understand--indeed, it was explained to the all-party group on

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occupational pensions only last week--that quite a number of pension funds are now offering a phased arrangement, whereby people may change to gilts on a periodic basis. So each year they put a proportion in, depending on how far they are away from retirement. That will eliminate much of the risk about which the hon. Gentleman is talking. However, they would need pretty good professional advice to make those decisions.

Mr. Darling: The hon. Gentleman has made my case. He said that people will need pretty good professional advice. However, the ability to give pretty good professional advice has eluded many in the industry. I accept that if there is an ability to phase and to buy more gilts, that should benefit the individual.

We all accept that the difficulty is that only a handful of people in this country understand how pensions work. If we had a private, anonymous and confidential poll in the House, we would find that only a handful of hon. Members understand how the pensions regime works. That should worry all of us as the House passes pensions legislation. Indeed, the Pensions Bill is in the other place at the moment. Every year, hundreds of thousands of people will buy pensions or take out pensions through their employers, but they do not have a clue how those pensions work.

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No doubt the hon. Member for Bournemouth, West (Mr. Butterfill) will want to make a pitch for his other interests and perhaps come to our rescue. However, if we change the regime and give people greater flexibility, we should ensure that people know what they are letting themselves in for.

Mr. Michael Stern (Bristol, North-West): Does the hon. Gentleman agree that there is a danger here? Some of the decisions that people will take in respect of this clause, or in related areas of pensions, cannot possibly be the subject of advice--except from

Nostradamus--because they depend entirely on a view of the state of the market in 10 years' time. We should be wary of placing a huge reliance on advice when that advice can only be an informed guess.

Mr. Darling: I am not sure whether Nostradamus is registered under the Financial Services Act 1986 to provide such advice. Equally, I am not sure what point I am supposed to take from the hon. Gentleman's comments.

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

Mr. Darling: No. I want to progress matters a little further. Of course no one knows what will happen in 10 years' time. No one knows what is going to happen in five years. Unless the hon. Member for Bristol, North -West (Mr. Stern) had a different manifesto from that of his colleagues, he will recall that he made a gross error of judgment in 1992 when he told his electors that things were going to improve in 1992 and that growth would start the day after the general election. No one knows what the conditions are going to be and no one would suggest that the Government or a regulator should place themselves in the shoes of an individual and make such judgments for them.

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However, a regulatory system can ensure that, when someone buys a pension or any other financial services product, that person should know what the risks are. People must form a judgment. The difficulty that we have had in this country for too long is that people do not know what the risks are because, as my hon. Friend the Member for Bolsover said, too many salesmen did not bother them about the risks. People were told to sign on the bottom line and to ignore the small print. They were assured that the money would be all right and that whatever they did would be better.

Happily, the regulatory system is beginning to bite on some of those people. However, there are still occasions when reputable companies, household names and companies which should know better allow inappropriate selling methods to continue. Companies with very good training regimes and very good and efficient regulatory regimes undermine those aspects by making their work forces depend on commission. If salesmen have to sell 10 policies a week, and only five have been sold by Friday afternoon, common sense tells us that a mistake is likely to be made.

I am not suggesting that we should attempt to substitute the judgment of Parliament or of the Government for the judgment of individuals. However, I am absolutely certain that we need a regulatory system that ensures that people are told the risks. That point has been raised many times in the House and I am afraid that it will be raised on many occasions in the future. Clause 52 and schedule 11 give a new opportunity for flexibility, and we welcome that. However, there is apparently an inflexibility with regard to occupational schemes. It would be reckless of us simply to nod the proposals through without having regard to the fact that the current regulatory regime is flawed in many respects.

That view is not held simply by Opposition Members. Many Conservative Members accept that there are problems with the regulatory regime which need to be addressed. That view is increasingly held outside the industry. I do not argue for a minute that there is unanimity about what should be done about the problem. We believe that self-regulation should be scrapped, but many Conservative Members do not hold that view. However, we are nearly at one in the belief that the system needs to be improved.

I mention that point because there are concerns. The Association of British Insurers, I think, has written to all members of the Finance Bill Standing Committee, stating:

"The risks to policyholders inherent in decisions of this nature must not be overlooked. There is no guarantee that a policyholder will benefit from a decision to defer purchase of his annuity"-- this will be a costly system to provide--

"a factor overlooked in the compliance cost assessment" to which I referred. Its present view is:

"Only those with funds at retirement in excess of £100,000 are likely to find this facility economic."

If the ABI is right about that--it has a certain view because of what it is, but otherwise it is a respected and reputable organisation--surely the Committee needs to spend some time considering what we are doing.

If the costs are so great that people will benefit only if they have £100,000 or more, we must reflect upon that, but we must reflect even more on the difficulties and risks

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involved in such a transfer. As it is within his ministerial responsibility, perhaps the Minister of State will tell us whether the Government have at last accepted that the regulatory regime needs to be looked at in respect of not only its structure but the quality of regulation.

The Personal Investment Authority is now off the ground. It is still recruiting its members, but it is becoming more and more responsible for the retail end of the market. There is concern about the quality and degree of regulation. Although the PIA has a rule and regulation for just about every eventuality, there are doubts about how effective they are. That matter needs to be looked at, especially in the light of this measure.

The other matter of which Ministers must be aware is that the pension transfer problem, which was highlighted 13 or 14 months ago, has not yet been resolved. Indeed, although the Securities and Investments Board has now instructed the Personal Investment Authority to examine pension transfer cases, the Minister will be aware that many people in the industry are trying to block that review. Before the courts at present, which is why I cannot go into the matter in too much detail, is an action that I understand is funded by individual independent financial advisers' professional indemnity insurers.

If that review is blocked, we will be back at square one. The Minister will then be driven to accept that legislation is necessary to try to unscramble the mess that we are in, but we should not compound the problem with pension transfers until that matter is cleared up. Although the Minister will say that the review is under way, it will be at risk if the judicial review is successful, and we will not know that for a few weeks. If the Minister has more information, no doubt he will tell us.

I observe in passing that it is ironic that the insurance industry itself-- professional indemnity insurers--is trying to block the regulators from trying to unscramble the mess and to sort out the problems of, possibly, 2 million people. Only under the Conservative Government could we have the absurd situation that self-regulation allows the interests of so many people to be in such a mess and threatened by litigation that is funded by another branch of the insurance industry. One would have thought that the Government might have accepted that they had some responsibility.

As I have said, more and more people will want to make provision for themselves, and more and more people are doing so. If we are to encourage them to do that, they are entitled to turn to Parliament and say, "You make sure that the regulatory system works." At present, the regulatory system does not work. There are fundamental problems with pension transfers which Ministers must address. Ministers have used self-regulation to turn their backs on the problem and walk away from it. It is high time that they faced up to their responsibilities and acted on behalf of the general public and not on behalf of those who continue to espouse self-regulation.

Mr. Butterfill: The hon. Gentleman will remember that my interest in the matter predates 1986, when I sat on the Committee which considered the Financial Services Bill, and that it also predates his sneering reference to the fact that I have advised the British Insurance and Investment Brokers Association on such issues for many years. Under the Labour party's proposals, which it put forward in 1986 and which accepted the principle of self-regulation--the

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only difference was that it wanted a statutory SIB--how would the presence of a statutory SIB rather than the present structure have altered the present position?

Mr. Darling: Direct regulation by the Securities and Investments Board, which is what we favour, would mean that the fiction of self- regulation by bodies such as the Financial Intermediaries, Managers and Brokers Regulatory Organisation, the Life Assurance and Unit Trust Regulatory Organisation and now the Personal Investment Authority would be done away with.

We would not have spent millions of pounds on setting up the PIA during the past three years. There would not have been the additional costs caused by the Treasury telling the SIB what to do, and then the SIB telling the self- regulatory bodies what they must do. We would abolish the difficulties caused by the fact that the PIA had to bid for members as well as bidding for recognition as a regulator. It is very difficult to serve two masters at once. That is the short answer.

Mr. Butterfill rose --

Mr. Darling: No, I have not finished yet.

The hon. Member for Bournemouth, West was unkind to accuse me of sneering. I have not mentioned one of the hon. Gentleman's many interests in the Register of Members' Interests. I am saving that for the Committee. The hon. Gentleman's entry in the Register is almost as long as some of the schedules in the Bill. He should not worry--I shall return to that subject.

I am not sneering at the hon. Gentleman. He takes a great interest in these matters and, in between times, he makes occasional lucid remarks which have a great deal of force. That was the sneering bit. The subject is too important to indulge in the sort of exchange that the hon. Gentleman has in mind.

I return to a point that I do not want to labour. Self-regulation does not work, because it is very difficult to serve the trade interest and the public interest. We want regulation that acts in the public interest. Of course we must have the involvement of practitioners--that is very important--but it must serve the public interest first and foremost.

Mr. Butterfill: What the hon. Gentleman is saying is rather different from the position that the Labour party took in 1986, when it endorsed the principle of self-regulation and simply wanted a statutory SIB above it, rather than the present structure of the SIB. Is he not moving the goalposts as he speaks?

Mr. Darling: One would be hard pressed to find anyone in the country who believes that the Financial Services Act 1986 does not need revisiting. That applies to people of all shades of opinion, both political and industrial. That was not a terribly good point. Having looked at what my colleagues said in 1986 and before that, I think that what I am saying-- with regard to our experiences over the past eight or nine years--is a logical development of that. There needs to be a change, and one day-- perhaps even in this Parliament--we may have the Second Reading debate for a new Financial Services Act, if the Government face up to the fact that changes are needed. Perhaps the new regime--there are a number of new faces on the Treasury Front Bench--might even see that change is needed. Perhaps the Government will continue

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their policy of clearing the decks in advance of a general election, in the hope that nobody notices those things between now and 1996, or whenever the election is.

It is important that we reflect that the pension transfer problem which was highlighted 14 to 16 months ago has not yet been resolved. The House is being invited today to approve something that could add to the problems, unless the regulatory regime is put on a proper footing. That is the point that I am making, and I shall continue to make it until the Government face the fact that reform is needed. It will be helpful to the House and to the country if the Minister tells us whether the Government accept that changes have to come to the regulatory regime, and whether the Government will contemplate even consulting on the matter or having further legislation because the present situation cannot possibly be allowed to continue. Given that it will probably take two or three years between the change being announced and anything being put in place, the sooner the Government take action, the better.

I shall revert to the subject that has dominated our thinking this afternoon--whether people will be forced to transfer. I draw to the House's attention a letter that I received from a firm which advises nurses and others in occupational schemes. The firm makes the point that those people may be forced into a position where, in order to get flexibility, they will have to transfer their pensions. That cannot possibly be right, and I hope that Ministers will make absolutely clear what the Government believe needs to be done to provide greater flexibility.

If there is no need to change the law, and it is simply a question of changing the Inland Revenue's practice, it would be helpful if Ministers could first announce that the Revenue is to change its practice and allow flexibility in occupational schemes. It would be helpful if the Government were to announce what their thinking is and what the goalposts are, if I might use that term. Many people outside the House want to know the position.

Paragraph 4(4) of schedule 11, headed "Income withdrawals", deals with a technical matter--I describe it thus as it is rather obscure. It requires that the withdrawals

"must be not less than 70 per cent. or more than 100 per cent. of the annual amount of the annuity which would have been purchasable by him"--

the policyholder--

"on the relevant reference date."

I understand that the Government will publish tables of annuity rates to which people can refer to calculate whether 70 per cent. is being withdrawn. I have been told that the problem with the table rates is that they will be arrived at on the basis of a level annuity--in other words with no indexation on the basis that there will be no pension for a surviving spouse.

I do not know whether that is true. Can the Minister tell me whether my understanding is correct? If it is, is not the 70 per cent. tariff high, as it might lead to far more disbursement than would be wise? Perhaps a 50 per cent. rate might be appropriate. I am seeking information and it would be helpful if the Minister could let us know the Government's thinking on that matter.

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In conclusion--you will be pleased to hear, Mr. Morris--we welcome the flexibility that the measure offers. It is a good thing, provided that people know that there is a cost, what the risks are and that we can never guarantee that deferral will mean more, or even the same amount, in the end.

Secondly, we need a clear statement on flexibility and the extension of that principle to all pension schemes. What is the Government's position, what are the rules and regulations and, if flexibility is to be allowed, what relaxation or changes do the Inland Revenue propose?

Our amendment highlights not merely the costs, but the need for the industry to be properly regulated. I shall emphasise time and again that self-regulation does not work in the conduct of the affairs of the House, or in the regulation of the financial services industry, and the sooner the Government face up to that fact the better. In that spirit, I hope that the Government will be able to explain their thinking.

Mr. Stern: First, I must make it clear that I have a personal interest in this matter. I was self-employed for most of my working life before I came to the House, I am still self-employed as regards my outside interests, and I inevitably took out some of the old retirement annuity policies and retained them. That fact will inform some of my later comments.

The comments of the hon. Member for Edinburgh, Central (Mr. Darling) on flexibility were a little rich. In 1984-85, before the hon. Gentleman came to the House, I served on the Standing Committees considering two social security measures that paved the way for the introduction of personal pensions. I remember the vitriol that the hon. Gentleman's colleagues--the hon. Member for Oldham, West (Mr. Meacher) and the right hon. Member for Derby, South (Mrs. Beckett)--threw at the concept of personal pensions, purely because they thought that ordinary people could not be trusted with flexibility in pensions. They were not prepared to consider the idea of people being able to choose between a good, honest, upstanding occupational scheme and a personal scheme that might accidentally be more appropriate in certain circumstances.

I welcome the change in outlook in the Opposition Front-Bench team, and the fact that they accept that ordinary people, as opposed to the organised masses for whom they were formerly speaking, welcome that flexibility. I urge the hon. Gentlemen to encourage some of his colleagues who have been here for longer to look at many of their entrenched attitudes towards other areas where ordinary people could benefit from the flexibility that he now lauds.

In introducing his amendment, the hon. Gentleman rightly distinguished between personal pensions that are being given the extra flexibility of taking an annuity on a range of dates; occupational pensions; and section 226 policies. But he failed to make one crucial distinction: such flexibility already exists in many good occupational pension schemes, and can be introduced in others. In any case, flexibility is available to employers to increase a pension in payment, which many large occupational pension schemes already do.

Such flexibility is not available to a person who has purchased either a personal pension or a retirement annuity. Many retirement annuity policies currently exist,

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and premiums are still paid into them. I am indebted to Scottish Equitable for supplying me rapidly with information on this matter and telling me that some 5 million section 226 policies are still in force, and many of those continue to grow.

Those policyholders do not have the flexibility that is being offered to personal pension holders under the clause, nor is it suggested that they should be entitled to it, despite the fact that current thinking in pensions is towards greater flexibility in retirement. For example, many people may now leave invested a large part of their pension provision to pay for care costs when they are very elderly, need much more care than can be provided through the state system, or need care that differs from that provided through the state system, for which they must pay. Such flexibility is built into the personal pension regime now proposed by the Government, but is on offer to no one else.

I hope that, both in replying to this debate and when we return to the subject later during the passage of the Bill, as I suspect we will, my hon. Friend the Minister will give better reasons for excluding retirement annuity policyholders and, to a large extent, many occupational pension scheme members, from the flexibility that is now proposed. It is not sufficient to say that it is open to a retirement annuity pensioner to transfer.

First, as the hon. Member for Edinburgh, Central rightly said, a suitable policy may not be on offer. Secondly, costs are incurred whether those are borne by the individual or other pension holders. The estimated cost for each retirement annuity policy transferred into a personal pension policy is some £50 per policy. Why should those costs be incurred when it is of no apparent benefit to the Exchequer to exclude section 226 policyholders from the benefits in the clause?

I hope that my hon. Friend the Minister will give a detailed explanation of why we are reintroducing a class system into pensions.

Mr. Forman: I agree with much of what my hon. Friend the Member for Bristol, North-West (Mr. Stern) said. I, too, look forward to a clear explanation from my hon. Friend the Minister, which I am sure we shall have, about the thinking behind how the lines have been drawn in the schedule. I say "schedule" because, even though we are talking about clause 52, the thrust of the debate so far has been about the terms and the implications of schedule 11.

In opening the debate, it is interesting that the hon. Member for Edinburgh, Central (Mr. Darling) made it clear to the House--and, through Hansard , to the country--that any future Labour Government would see a further upheaval of the financial services industry through the introduction of direct statutory regulation by the Securities and Investments Board in place of the existing measures and structure, which have taken the best part of seven years to put in place. I think that the industry must be warned about that. The main point I wish to make in this afternoon's fairly narrow but necessary debate is that, as I understand it, clause 52 and schedule 11 constitute a permissive and not a mandatory measure. That goes to the heart of what I said to the hon. Gentleman by way of intervention. The arrangements do not force any transfer upon pension holders, and nothing is required to be transferred by law. If the Bill becomes law, certain advantageous

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arrangements will be offered to categories of pension holders, and they may or may not take advantage of them, depending on the quality of advice they receive and their own decisions about their plans between the age of 50 and 75 years.

I want to ask the Minister of State some relevant questions. First, if the Bill goes ahead unamended, can he confirm that the costs of making a transfer will be of the order mentioned by my hon. Friend the Member for Bristol, North-West, or will they be more or less than that? Have some estimated categories of cost been overlooked at this stage?

Secondly, are there any persuasive arguments against the idea of extending the principle of flexibility to the other instruments mentioned by my hon. Friend? Thirdly, can we feel confident that, when best advice is given, particularly by independent financial advisers, that best advice will include not only the advantages of transferring--all hon. Members know of cases where those advantages have proved illusory and damaging to the people concerned--but the advantages of staying with the existing arrangements?

The hon. Member for Edinburgh, Central said, quite correctly, that most people in the country, and indeed in this House, do not fully understand their own pension arrangements, let alone those of other people. Obviously it is important that independent financial advisers argue clearly the advantages of maintaining the present position rather than making a change.

I welcome the option of flexibility which the clause opens up for people between the age of 50 and 75. I do not think that it will clinch the decision for all people: they would be wise to look carefully at the implications of the measure for their individual circumstances.

I urge my hon. Friend to think carefully, and preferably inform the House as fully as possible, about the assumptions which lie behind the present policy. Perhaps he could include some up-to-date figures about the size and scope of the personal pensions market today. My hon. Friend the Member for Bristol, North-West has already cited figures in relation to section 226 contracts, and it would be useful to compare them with the personal pensions market.

I welcome this element of the Finance Bill, and wish it well. However, I think that we need to address some of the detailed points which have been raised on both sides of the Chamber.

Mr. John Denham (Southampton, Itchen): The debate so far has hinged on the question not whether flexibility is desirable, but whether the regulatory system which is in place is sufficient to ensure that those who choose to exercise flexibility take the right decisions. That is where the real question marks arise, and there is little sign that the Government are addressing the weaknesses in the regulatory system.

Obviously, anyone who considers exercising the new flexibility afforded by clause 52 will be making a critical and very difficult decision. As has already been said, that decision requires the ability to project into the future in a way that few people, including professional advisers, are able to do. Recent evidence shows that those who have sought to project into the future have fairly consistently overstated the benefits of taking a particular investment decision, which has left people very vulnerable.

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An obvious example which comes to mind is the sale of home income bonds in the late 1980s. The pitch behind that sale--"Here is a way of making far more out of your capital than you previously thought possible"--could apply also to the holder of a personal pension. That exercise ended in disaster for many households.

Although the costs have not yet proven to be as high, it is clear that the sale of endowment mortgages--essentially a gamble on the performance of the stock market--in the 1980s took place on the basis of results which have not been achieved. The projections for the performance of endowment mortgages which were approved at that time by the regulatory organisations have subsequently been scaled down. In looking at using personal pensions in a flexible manner, we must say that the regulatory system failed to ensure that people received the best advice in those circumstances. My worry about clause 52--not the principle of it, but its practical consequences--is that good advice is again not likely to be forthcoming.

We do not know whether someone who has bought a personal pension will have much money to invest in an annuity. People who have invested two or three years' savings with a firm such as Guardian may find that they have nothing left when their policy matures after 20 or 30 years, because, according to the projections of Money Management magazine, the effects of fees and charges will exhaust their savings altogether. Many people who have entered the personal pensions market believing that money is accruing safely to provide for their future pensions will find that they have very little or no money left at the end of the day.

Even more important than the flexibility with which people can invest in a pension fund is the return they receive on that investment. The survey by Money Management showed that some firms produce twice the rate of return on policies as others. At the moment, the regulatory system contains little to enable a personal pension purchaser to distinguish between the best and the worst performers in the industry.

Mr. Butterfill: Does the hon. Gentleman agree, therefore, that it is even more important that independent financial advisers retain their place in the market, and that we do not move to a system where most schemes are marketed directly by financial institutions which do not offer a range of independent advice? Does he agree that the report conducted into the matter for the Securities and Investments Board showed that those who took independent financial advice fared much better than those who bought directly from financial institutions?

Mr. Denham: I am not aware of the report which made that distinction. Some independent financial advisers offer a good service; equally, there are those who do not. The record books are full of both examples, and one could argue either way in order to prove one's case. However, I think that it is to the consumers' advantage that they can turn to independent financial advisers for advice as well as to the major companies.

The Government's failure to regulate in that area is costing the taxpayer a great deal of money. It appears that, up to 1992, £3.5 billion was paid to private insurance companies on behalf of personal pensions by people whose incomes were so low that they would have been

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better off remaining in state earnings- related pension schemes. That is an enormous sum of public money to pay the private insurance industry to put people in a worse situation than they would be in otherwise.

Assuming that such people retain their pensions until they mature, they may find that the annuity in which they wish to invest under this clause will buy them a pension less than the one they would have received under SERPS-- whether they purchase the annuity on the date that the policy matures, or whether they buy it some time later. There are no signs yet that the Government are using the regulatory system to clamp down on that sort of mis-selling. Pension fund opt-outs affect perhaps half a million people, but opt-outs from SERPS by people on low incomes affect perhaps 2.5 million. Numerically, it is a much greater problem than that with which the board is wrestling.

One in five people abandon their personal pensions within the first year of sale. Almost every one will lose practically all the money that they paid, and the money paid by the taxpayer in the form of national insurance contributions and additional rebates will be entirely wasted. Although this debate naturally concentrates on policy maturity, far too little is done by the Government to make sure that someone who buys a personal pension is in a position to maintain it until its maturity.

Mr. Forman: The hon. Gentleman makes an important point about the start of long-term schemes. Does he have further evidence that, in the majority of cases, people terminate their pensions because of a force majeure--a downturn in their personal circumstances? Is it not more usually the case that the advice that they were initially given was defective?

Mr. Denham: There is no satisfactory answer to that question, because studies of individual cases in sufficient detail have not been completed. The question arises, what is force majeure in such circumstances? If someone discovers that they cannot continue a policy less than one year after it was sold to them, that is arguably something that a competent salesperson, properly managed, should have predicted. That will not always be so, but in many cases where policy payments lapse after a relatively short time, the reasons will include bad advice because the salesperson did not look sufficiently into the future in determining the best policy.

That is often the case when individuals are encouraged to sign up for regular premium policies, when they would have been better advised to enter into a single premium policy. Such a policy would largely protect them from the whole of the first three years' premiums being absorbed by commissions and fees, and would provide the security of knowing that the amount invested will stay invested for a reasonable time.

I am not against the principle of flexibility but a major investment decision by someone in their fifties, sixties or seventies requires a level of advice and expertise that the financial services industry and its regulators have not yet demonstrated. Hand-in-hand with the Government's proposed measures should be a reassurance that they will

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continue to drive the regulatory structure, so that consumers will be better protected from bad advice than in recent years.

Mr. Butterfill: I am the first to agree with the hon. Member for Edinburgh, Central (Mr. Darling) that the existing regulatory structure contains defects, and did so ab initio. The problem is that, following implementation of the Financial Services Act 1986, the Securities and Investments Board did not require a single retail regulator. That, above all else, caused the majority of the subsequent problems.

Regrettably, Sir Kenneth Berrill, the board's first chairman, concentrated more on writing detailed rule books--as one might have anticipated of a former civil servant--than considering the big picture of what was to happen in the marketplace. Had he done that, and insisted on a single retail regulator, today's position would be considerably different.

However, we have a single retail regulator now in the Personal Investment Authority. I agree with the hon. Member for Edinburgh, Central that it took a lot of cajoling to secure one. I would have preferred a modest amendment to the 1986 Act, to give the SIB power to direct the way in which practitioners were regulated and by whom. That would have made the PIA's birth much less painful. Having said that, it is up and running and likely to work satisfactorily. We ought to give it a good try before embarking on wholesale reform of the 1986 Act.

I agree with my hon. Friend the Member for Bristol, North-West (Mr. Stern) about section 226 policyholders. Again, I must declare an interest as such a policyholder myself. Distinguishing between one group of pension holders and another is unjustifiable. I am particularly concerned about people in occupational schemes that are money purchase schemes, who will be disadvantaged relative to those in other schemes under the Government's proposals.

I see no justification for disadvantaging some policyholders, and agree with the hon. Member for Edinburgh, Central that we ought to remedy that situation in the Bill. There is a grave danger that many people in good occupational schemes that are money-purchased will be tempted out of them and into personal pensions that may be inappropriate. Contrary to the suggestion of the hon. Member for Edinburgh, Central, the respectable part of the independent adviser profession agrees with him. He may have seen the briefing that the IFA Association sent to hon. Members.

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