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Mr. Flynn: On a point of order, Mr. Deputy Speaker. While I make no criticism of you or the other Deputy
Speaker who chaired this very good debate, could we make the point that, while some say that the Welsh Assembly will be a talking shop, for 10 hon. Members this morning who represent Welsh constituencies, this Parliament was a non-talking shop? We had no opportunity to express our enthusiasm, excitement and exhilaration about the prospect of a Welsh Assembly.
Mr. Deputy Speaker: That matter is not in my hands but in the hands of other hon. Members. If their speeches had been shorter, I would have called more hon. Members.
SELECT COMMITTEES RELATED TO GOVERNMENT DEPARTMENTS
Ordered,
Ordered,
That--
(1) Standing Order No. 152 (Select committees related to government departments) be amended, in the Table in paragraph (2), in the item relating to the National Heritage Committee, by replacing the words 'National Heritage/Department of National Heritage' with the words 'Culture, Media and Sport/Department for Culture, Media and Sport'; and
(2) all proceedings of the House and of its Select Committees in this Session in respect of the National Heritage Committee shall be deemed to have been in respect of the Culture, Media and Sport Committee.--[Mr. Jon Owen Jones.]
That, at the sitting on Thursday 31st July, the Speaker shall not adjourn the House until she shall have notified the Royal Assent to Acts agreed upon by both Houses.--[Mr. Jon Owen Jones.]
Ordered,
That Mr. Donald Anderson, Mr. Andrew F. Bennett,Mrs. Gwyneth Dunwoody, Mr. Derek Foster, Mr. Bruce George,Mr. David Hinchliffe, Ms Margaret Hodge, Mr. Jimmy Hood,Mr. Martyn Jones, Mr. Gerald Kaufman, Mr. Archy Kirkwood,Mr. Peter Luff, Mr. John McWilliam, Mr. David Marshall,Mr. Rhodri Morgan, Mr. Chris Mullin, Mr. Martin O'Neill, Mr. Giles Radice, Mr. Robert Sheldon, Mr. David Tredinnick and Mr. Bowen Wells be members of the Liaison Committee.--[Mr. Jon Owen Jones.]
Ordered,
That Mr. Alan Campbell, Mr. Geoffrey Clifton-Brown, Mr. David Davis, Mr. Ian Davidson, Mr. Geraint Davies, Maria Eagle, Jane Griffiths, Mr. Phil Hope, Mr. Christopher Leslie, Mr. Andrew Love, Mr. Robert Maclennan, Mr. Richard Page, Mr. Charles Wardle,Mr. Dafydd Wigley and Mr. Alan Williams be members of the Committee of Public Accounts.--[Mr. Jon Owen Jones.]
25 Jul 1997 : Column 1198
Pensions (Mis-selling)
2.31 pm
Mr. Andrew Love (Edmonton): I am grateful to Madam Speaker for giving me an opportunity to raise this critical issue before the summer recess.
- "One of the biggest financial scandals in British history."
Pensions are about providing security in old age. It can be provided only through long-term savings, which depend critically on trust and consumer confidence. Both have been undermined as part of the fallout surrounding the scandal and the failure of the pensions industry to identify and compensate those affected.
The scandal could not have reached the proportions it has had it not been sustained by a potent mix of ideological prejudice and institutional incompetence. The conditions for it were created by a Government intent on offloading those on state pensions into individualised schemes in the private sector. That was done through a combination of bribes at the taxpayer's expense and an expensive advertising campaign to promote such schemes.
It was fuelled by a pensions industry unable and unwilling to restrain the baser instincts of its sales staff, whose salaries were almost exclusively dependent on making a sale and earning a commission. It was sustained by a regulatory regime that failed adequately to tackle the mounting evidence of mis-selling or set effective deadlines for redress. It was writ large by a combination of pensions industry indifference and the palpable failures of self-regulation.
It all started in 1988, the year in which personal pensions were launched and when the main provisions of the Financial Services Act 1986 came into force. However, it was not until December 1993, a full five years later, that the issue of mis-selling first came to light. At that time, the Securities and Investments Board commissioned KPMG, a leading firm of City accountants, to review the files of a sample of clients who had been sold personal pensions. Only 9 per cent. of those files showed evidence of substantial compliance with the rules, and the report classified 37 per cent. of the files as suspect.
Personal pensions were supposed to be sold against rigorous standards that were set out in the Financial Services Act. Not only should clients receive best advice on the choices before them, which would have included remaining with their existing pension providers, but sales staff also had a duty to find out about current pension arrangements and financial circumstances. To underpin those standards, the Government set up a number of watchdogs. The problem was that, under self-regulation, the watchdogs were those who were selling personal pensions.
Despite the overwhelming evidence of mis-selling that emerged in late 1993 and early 1994, it was almost a year before the SIB published a programme for securing
redress for the victims of mis-selling. The extent of the scandal began to emerge at that time. It was on an unprecedented scale, with more than 570,000 priority one cases--those at or near retirement--and a further 1 million to 2 million cases involving younger people. There is some evidence that those may be underestimates, because some sections of the industry have shown a marked reluctance to alert their clients to the fact that they may have been mis-sold pensions and are due for compensation.
Various deadlines in 1995 and 1996 were set for the review of cases of the different priority groups. None has been met. In the two and a half years following the first evidence of mis-selling, the pensions industry was able to deal only with just under 1 per cent. of priority one cases.
That lamentable record was matched, if not exceeded, by that of the Conservative Government. They did nothing, because they were responsible for creating the climate in which mis-selling could take place. Their failure can be summed up by the fact that more than 18,000 people who were mis-sold personal pensions died during their administration without receiving compensation.
I am pleased to see that the Government have been and will be more robust in meeting the new deadlines for case review and for the payment of compensation. The decision to get tough, and to name and shame those who are dragging their feet, has been universally welcomed by Labour Members, by those directly affected, and by the public. They have been welcomed by everyone except some of the companies involved, and by Opposition Members, who are absent for the debate and who remain strangely silent on the issue.
I note the new determination of City regulators to enforce the review deadline with a threat of heavy fines for companies that do not comply. All that is welcome.
Before I am accused of knocking the pensions industry as an easy target, I shall put to the Minister two of its concerns about the continuing delay in the processing of claims. I have been told by those companies that want to clear up the mess that they are being hampered by the pension funds of small and medium-sized companies, which do not have the resources to respond with the basic information that is necessary to agree compensation.
There is also concern over the prospects of reaching an agreement with the regulatory organisations about practical schemes which, I am told, many companies are anxious to develop to resolve outstanding claims. Perhaps the Minister will comment on that. Even assuming that its concerns are valid, the pensions industry would have to accept that the latest published figures to the end of June, which show that only two of the 24 companies have managed to compensate more than one in 10 of their cases are deplorable.
Even allowing for the argument of the Association of British Insurers that the figures include a considerable number of cases where no mis-selling has been found--and I would certainly wish to argue with it about the numbers--there is still a considerable mountain to climb to complete the review by the end of the year.
Recognising that the Government's freedom of action is somewhat constricted by the threat of litigation, I wonder what further action the Minister could contemplate, to achieve, in her own words:
In the context of the recently announced pensions review, I hope that the Minister will confirm that the Government will not consider extending the scope of privately funded pension arrangements before the issue of mis-selling has been resolved, and that those companies that fail to meet the targets set by the regulatory authorities will prejudice their inclusion in any new arrangements following that review.
The mis-selling of pensions exposed all that is wrong with self-regulation. As a result, I welcome the Government's commitment to statutory backing through a new financial services Act and the creation of what has been called Super SIB. However, we must recognise the concern of much of the industry that those changes should not lead to an increase in industry compliance costs, which will inevitably filter through to the consumer.
Regulation must be at a level that has the confidence of the consumer, and re-establishes the trust that has been so badly dented through this whole fiasco; but regulation must also be delivered at a cost that can be justified. Achieving a balance that creates a framework of effective regulation that is appropriate, responsive and flexible will be one of the foremost challenges facing the new arrangements.
One of the lessons of the recent past is the need for greater transparency, in terms of both the financial arrangements underpinning personal pensions and the degree of independence of so-called "independent" financial advisers. The Consumers Association has campaigned for a fee-based system, under which people pay for genuine advice from truly independent financial advisers, rather than having people posing as such, as at present.
Although changes have been made in the financial arrangements for personal pensions, there is some evidence that sales staff are still too dependent on commissions, and that the level of training is not appropriate. As a result, human nature could again undermine confidence in the industry, which is so vital to its future.
The Minister has made it clear more than once that her decision to review progress and to publish information is in the public interest. I agree. One of the problems that has undermined consumer confidence in the industry is the lack of published information. Real benefits to the consumer would accrue from the provision of simple and easily understood information about the financial aspects of personal pensions.
"the Government's determination that this matter be resolved with dispatch".
25 Jul 1997 : Column 1200
What scope does she have for the extension of sanctions against companies that simply refuse to take the steps necessary to deliver the targets for completion of case reviews set by the regulators?
If companies continue to refuse to adopt the type of practices that the Government believe will hasten the conclusion of case reviews, will my hon. Friend consider further sanctions? Recently, the Minister for Welfare Reform suggested extending the powers of the Personal Investment Authority to include fines on directors. What scope exists to disqualify company directors who continue to refuse to comply?
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