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Personal Pensions: Mis-selling
4.30 p.m.
Lord McIntosh of Haringey: My Lords, with the leave of the House, I should like to repeat a Statement made in another place by my right honourable friend the Economic Secretary. The Statement is as follows:
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"With permission, Madam Speaker, I would like to make a further Statement on the mis-selling of personal pensions.
"On 9th July I reported to the House on the progress being made by individual firms with most cases to put right in what is possibly the most extensive scandal ever seen in our financial services industry. Each month subsequently I have published the latest facts available to me. Today I have placed in the Library further information about the progress being made.
"We are now seeing positive results from the pressure applied since this Government were elected. In May only 2 per cent. of cases had been compensated. Now there has been a sevenfold increase in the number of people receiving
- compensation--proof that in the cold glare of publicity firms can raise their game and make progress. However, more could and should be done.
"Before I go into more detail, it might assist the House if I recall the events which led to this scandal. The Social Security Act of 1986--a much-vaunted piece of legislation by the previous government--encouraged millions of people to change sound pension arrangements for something different in the belief that they would be more secure in later life. Some will be. Not all, however. For some, the change meant a future less secure, not more so.
"Between 1988 and 1994, life insurance companies, independent financial advisers, banks and building societies, through vigorous marketing, sold over 5 million personal pensions. It soon became clear that this meant disaster for many, including hundreds of thousands in nursing, teaching and other professions who had been persuaded against their best interests to abandon the safety of their occupational schemes.
"The truth is that many firms did not abide by the regulatory rules then in force requiring them to give suitable advice. Among those firms failing their customers were many household names.
"The Securities and Investments Board in 1994 took the unprecedented step of requiring firms to review the cases of those most likely to have suffered. The scale of the problem can now been seen: some 600,000 cases are currently being reviewed and on current indications the cost of compensation will be at least £2 billion.
"Deadlines were set for completing the most urgent reviews. These were well missed. The previous government stood by and let this happen.
"On 14th May this year I met heads of 24 firms responsible for about three-quarters of the total of the cases; I left them in no doubt about our determination to ensure those wasted years would be redeemed.
"Most of the big firms are making headway; indeed, some of them have made large strides. But far too many firms--from large insurance companies to small independent advisers--have been far too slow to act. Some have hardly started. They have failed to grasp the severity of the situation.
"The experience of the past few months shows that pressure--from the Government, the regulators and the public--is working. I intend to maintain it until the review is completed. In May the regulators set hard but realistic new targets for all the firms concerned and made it clear that there would be robust disciplinary action.
"For most firms the first of these targets is to complete 90 per cent. of the most urgent cases by the end of next month. Beyond that, they must complete all their priority reviews by the end of next year--at the very latest. When they reach that target, I shall remove their names from the list which I publish each month, although they must continue to update me on their progress.
"The recent reprimands and fines against firms such as the Prudential, Friends Provident and DBS have attracted wide publicity. This disciplinary rigour will continue. But the Government and the regulators recognise that in respect of some companies at least these sanctions may not be enough; they are not galvanising the laggards. For them, a stronger armoury of sanctions is required. The Personal Investment Authority is working to achieve this through individual registration, and the new regime will come into force as soon as possible next year.
"Once this regime is in place, sanctions can be fine-tuned to apply pressure directly on those responsible. Individual directors, managers or salespeople found to be at fault will face the prospect of fines, public reprimands or restrictions upon the type of work in which they may be involved. In extreme cases, they could be expelled from the industry.
"The public has a right to know about these failures. At present, the PIA has the power to require firms to advertise their misconduct and the grounds on which they have been disciplined. Until now, this power has been kept in reserve. There is now every reason to use it to the full. The PIA is currently examining ways to ensure that customers are informed directly of a firm's failings.
"The Government believe the time has come for a tougher range of sanctions to come into place. The only way for a firm or an individual to avoid disciplinary action is to avoid the conduct which warrants it.
"While putting right the wrongs of pensions mis-selling has been the priority, the Government have not lost sight of the fact that the financial services industry is central to our economic prosperity and to the welfare of millions of people. However, its prosperity requires the confidence of the public. That is why the industry must act quickly to restore that confidence. If there is continuing evidence that some firms will not learn the lesson of the past few years and continue to harm investors, then we will act to clean up the industry. To this end, the PIA has the authority to intervene on behalf of the public and require that a firm ceases to market or sell some or all of its investment products for a period and puts its house in order.
"Firms whose compliance with the regulators' requirements is so poor that investors are put at risk can effectively be put out of business. The PIA will use this power wherever warranted. Candidates for this action will include any independent financial adviser or any other firm found to be using the review process as a foot in the door to sell more products.
"The regulators and the Government also have powers to protect the public by taking action to exclude senior people who are not fit and proper from involvement in financial services business. Those who are not fit and proper can be removed from their posts. We will see to it that they are removed.
"In the years ahead the Government plan a number of major pieces of legislation which will have a profound impact on the financial services environment. Lessons learned from the pensions mis-selling episode will be in all our minds as we go about that task--in relation to stakeholder pensions, in relation to individual savings accounts and indeed as we reform the regulatory regime itself.
"So far as pensions policy is concerned, we will not repeat the mistakes of the previous government. We will not set people up for a fleecing. We anticipate that future decisions on the regulatory approval of stakeholder pension schemes would take into account the conduct and corporate governance of those involved. This would include, of course, their record in settling cases of mis-sold personal pensions.
"I hope that by the combination of measures which I have outlined to the House today we can ensure that never again will the public be exposed to such a scandal as that which I have described today and that those who have suffered can now look to speedy redress. Justice for them has been too long delayed; this Government are determined to ensure it is delivered."
4.38 p.m.
Lord Mackay of Ardbrecknish: My Lords, I thank the noble Lord for repeating the Statement made by the Economic Secretary in another place. May I start by saying that there is nothing between us on the need for the pensions industry to right the wrongs of the pensions mis-selling. Indeed, the Economic Secretary's predecessor, Mrs. Angela Knight, made it clear to the industry that it had to put these matters to rights. However, I wonder whether the noble Lord would accept that pensions matters inevitably take a little time to be put right.
I remind the noble Lord of the time it took my noble friend Lord Cuckney to put matters right regarding the Maxwell pension fund. And that was not just mis-selling: it was pure robbery. Putting that right took a considerable time and a great deal of effort on the part of my noble friend and his colleagues. Equally, as a Minister of State in the Department of Social Security it took myself, my colleagues, our officials and indeed Members of your Lordships' House many hours--indeed months--to bring in the Pensions Act and the protection for pensioners we all judged necessary as a result of the Maxwell scandal. So the Economic Secretary to the Treasury ought to think about these examples when discussing the time it takes to put pension matters right. Nobody knows more about Robert Maxwell than she, as a one-time adviser to him, does. I would suggest that perhaps she might remember the old adage that people who live in glass houses should not throw stones.
I note in the Statement that something like 600,000 out of 5 million pensions sold are under question. The Minister seems to dissent. But that is what the Statement says: that 600,000 cases were to be investigated. Not all of them may result in a decision that they were mis-sold.
But we understand that the cost is likely to be £2 billion. That is something that the pensions industry should attend to as quickly as it possibly can; and that, as the Minister said, includes some household names, including some household names which the Government have decided to look to in order to help them with issues such as the Welfare to Work scheme. I hope that the companies whose top people are giving help to the Government on other matters will not find themselves sheltered from the strictures of the Economic Secretary.The Minister pointed out that for most firms the first of these targets set by the Economic Secretary earlier in the year is to complete 90 per cent. of the most urgent cases by the end of next month; that is, by the end of December. Do I take it that we shall have another Statement in January to report progress on meeting that target of 90 per cent. completed by the end of December? It seems to me that we should have been better to wait until that important target date had passed before we had today's Statement. That leads me to believe that something of a diversionary tactic is being undertaken here to take our minds away from the scandal of Formula One and tobacco sponsorship.
I return to the 600,000 mentioned in the Statement. How many are likely to opt back into SERPS? Have the Government any estimate of that? How much is that likely to cost SERPS in the longer term? Still on the question of SERPS, how many are likely to opt back in from perfectly good schemes which have been damaged severely by the Chancellor's pension tax? When thinking about the £2 billion that we are discussing in relation to pensions mis-selling, is it not remarkable that the Chancellor's pension tax will take £5 billion every year from pension funds up and down the country, including, for example, county council pension funds which must find £3.7 million per year from council taxpayers in order to undo the damage done by the Chancellor's pension tax? Perhaps I may even tempt the Minister to name and shame the Chancellor for his pension hit.
I notice that, the Statement having been very strong, the Government realised, by doing a little bit of simple arithmetic, that on their calculation £4.4 billion of the pensions were not mis-sold. There are many people who, if it had not been for the 1986 Act, would not have any provision at all. Indeed, as far as I understand it, the Government intend to build on private pension provision in various ways in order to encourage even more people to take out pension provision.
Therefore, I conclude by saying that I agree with the Government in their Statement that the financial services industry is central to our economic prosperity and to the welfare of millions of our people. I suggest to the Government that perhaps a little moderation in their tone sometimes might be called for if they wish to encourage that industry and encourage the people who are currently without pensions and who will need the assistance of the financial services industry in the future if they are to have the pensions that they need and deserve.
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