I beg to move,
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 occupational pension schemes and the State Earnings Related Pension Scheme to invest in pension provision which offers no real prospect of security; notes the evident failure of self-regulation; and, recognising the need for transparency and full disclosure of terms and conditions governing policies, condemns the failure of Her Majesty's Government to act and calls for effective direct regulation of the pensions and financial services industry.
For the avoidance of doubt, I must make it clear that the Opposition see an important place for private pension provision in the legitimate range of choice that is open to people who are preparing for retirement. The state is in that business, as are occupational pension schemes and private schemes. The mix will vary from person to person. All the possibilities should complement each other as people strive to construct the package that suits their needs. We are certainly ready to recognise the place of private pensions, but we are not starry-eyed about the way in which they are operated or about the problems that we face. We are certainly not prepared to ignore their shortcomings and the difficulties that were predicted and which have recently come to haunt us.
Our charge is that the Government have suspended their disbelief and critical faculties for political purposes. A blockage has inhibited their right and duty to act, with the result that a large number of people's interests have been prejudiced. Government policy has been marked by inaction and has allowed unacceptable practices to develop, as is widely recognised. Many people's pensions have been severely prejudiced. The Government have been something of a passive spectator as the confusion has grown. There has been muddle and the self-evident inadequacy of self-regulation, and to some extent Ministers have been bound by their own dogma—
For the sake of accuracy, it is wise to define self-regulation. We are talking not exactly about self-regulation but about regulation by professional organisations; that distinction is sometimes lost on members of the public. We are not talking about self-regulation in the other sense of the word.
I shall come to that when I mention the debate about the Personal Investment Authority and its future and the widespread reservations that have been expressed about the composition of its board. In the public's mind, doubts about self-regulation rightly arise when a regulatory organisation is dominated by the industry that it purports to regulate. The industry has significant reservations about the proposals in that respect. I give the hon. Member for Esher (Mr. Taylor) an undertaking that I shall return to that subject later and that my hon. Friend the Member for Edinburgh, Central (Mr. Darling) will deal extensively with the regulatory machinery when he closes the debate.
I want to set out the charges on the indictment because it is only fair that the Minister should be aware of the nature of our complaints. The first complaint relates to the active encouragement that the Government gave people to contract out of the state earnings-related pension scheme. Since 1988—the figures vary a little—I gather that. about 6.5 million people have moved into approved pensions policies, which has been paraded as a triumph for freedom of choice and as a flagship of success—
I was going to say paraded as a flagship of success for the hard right, but I thought that that description might be a little unfair on the Minister. The hon. Gentleman's cries encourage me to use the phrase with total justification and I adopt it accordingly. Indeed, if one looks back—
Will the hon. Gentleman let me proceed?
If you look back to 1988, you will find, Mr. Deputy Speaker, that most of the usual suspects were on the scene of the crime and very much involved. The present Chief Secretary, the present Secretary of State for Social Security and the Prime Minister himself were all, to varying extents, involved at about that period.
As I understand it, about 5 million people are in approved pension schemes at the moment, and that is a matter for concern rather than congratulation. My complaint is that neither the industry nor the Government made any attempt to explain the pros and cons. The Minister will remember that in January 1988 his Department embarked on an advertising campaign on which it spent £1.2 million, in effect, to advertise a product—the approved private pension that people would take if they contracted out of the state earnings-related pension scheme. That advertising campaign is now widely recognised as uncritical and unbalanced. SERPS was—literally—visually portrayed as a straitjacket from which the individual was invited to break out to the promised land. Many people uncritically took that advice and find themselves disadvantaged as a result.
There was no discussion about, for example, the variation in the performance of funds, the influence of the condition of the stock market and the level of interest rates at the time of retirement, or the advantages of index linking in SERPS where there was a revaluation in line with national average earnings. There was no discussion of commission and charges in the private sector—which I am told can often amount to 20 per cent. of total contributions even in the case of those policies. People were invited, without reservation, simply to move on a promise; none of the shades of black and white were sketched in or referred to in the Government's or the industry's advertising. It is now obvious that great damage was done simply because there was no wish to let the arguments get in the way of the selling line.
I totally accept that that would be the height of irresponsibility and I would not for a moment try to do that. I shall discuss the numbers in a minute or two. They are difficult to define, as the hon. Gentleman, who I expect has expertise in that matter, will appreciate.
Some ground rules for judgment are emerging, which are broadly accepted by the industry and by outside commentators. The real test—
Does the hon. Gentleman accept that the problem that was outlined in 1986 was that the number of people with occupational pensions had remained static for 20 years, and that the Government were trying to persuade a large number of people to take on the benefits of enhanced pension provision? The 5 million people who have done that since then have acquired real benefits, have they not?
Some of them, but not all. I know that the hon. Member for Hertfordshire, North (Mr. Heald) takes a great interest in these matters and is an advocate. I am sorry, he is a barrister. I must remember the English language as distinct from the Scottish terminology; it is the same profession, as the hon. Gentleman recognises. He will remember—if he does not, I remind him—that when the National Association of Pension Funds Ltd. responded to the Green Paper "Reform of Social Security" in September 1985, it expressed specific anxiety about the Government's claim that the introduction of SERPS had stagnated the growth of private pension provision in the form of new occupational schemes.
The national association also argued:
It is our firmly held view that a collection of money purchase personal pensions can be no substitute for the security of a defined benefit final salary scheme.
It argued in favour of occupational pensions, but was worried that many people who were not entering occupational schemes were opting out of SERPS in order to go into APPs where there were real and substantial difficulties in terms of their age profile and salary level. I will now discuss those subjects.
Do not the hon. Gentleman's reservations relate to an entirely different issue—the reform of occupational pensions in the Social Security Act 1986? The new personal pensions have enabled 5 million more people to enjoy enhanced pension provision. Does the hon. Gentleman accept that no one can argue that that is anything other than good?
I hear a mutter of applause run round the ranks of the faithful. If every one of those people had ended up with enhanced pension provision and had been advantaged by the switch, it is unlikely that I would be complaining, or that I would be backed by a wide range of professional opinion inside the industry.
I am arguing, and I am sure that the hon. Member for Hertfordshire, North is familiar with my arguments, that a very large number of people—62 per cent., according to the Government's figures—have earnings of less than £10,000 a year and many are too old and ought either to have remained in SERPS or ought by now to have returned to SERPS to maximise their advantage. It is untrue to suggest, therefore, that the rush to contract out, which the Government promoted and encouraged, is an unqualified blessing or that it has not left many people disadvantaged.
No doubt people will argue about the pivotal age above which it is a disadvantage to remain contracted out. Let us take a comparatively conservative figure, and assume that the age is 40 for men and 35 for women. If one adds to that the people who have earnings of less than £7,500 a year, one finds that 53 per cent. of men and no less than 71 per cent. of women should now contract back into SERPS. That is what I am assured by actuaries—I do not pretend that I have done those calculations myself. Many of those people should never have left SERPS. Suppose that one wants to be ultra-cautious. If one takes the pivotal age as 45 for men and 40 for women and an income of £6,000 a year or less, one finds that 39 per cent. of men and 54 per cent. of women are in that situation.
I am prepared to listen to arguments. I know that the Prudential, for example, takes ages of 49 and 42 as the pivotal ages whereas the Norwich Union takes 45 and 37. There is a range of professional opinion, but there is no doubt that all those companies and experts accept that there are very large numbers of people—perhaps as many as 2.5 million—who are contracted out and in whose interests it would be to return to SERPS, many of whom never should have left SERPS.
I know that that is rather brutal language, but it is a scandal—a scandal which is no less serious because it was so long unrecognised and no less cruel because many of the victims were, and probably still are, unaware of their plight. We are talking about something that is a result of the Government's impetuous love affair with the private sector. I do not for a moment decry the contribution that the industry makes, but we cannot have that type of uncritical policy, which has done so much damage.
I noted that in the Observer last Sunday—the hon. Member for Havant (Mr. Willetts) will have read the article—a partner in a well-known law firm specialising in pension matters described the consequences of the Government's policy as "mind-blowing." I think that that is not unfair.
The hon. Gentleman is arguing that it was disadvantageous for millions of people to leave SERPS. Why, then, in previous speeches, has he criticised what he regarded as the generosity of the rebates for people who were leaving SERPS and taking out personal pensions? Surely those two arguments are inconsistent.
No. I do not think so at all. If I want to prejudice the hon. Gentleman—if I want to persuade him to do something against his interests and I offer him an inducement to go down a road that is greatly to his disadvantage—it seems to me that I am insulting him twice. All I am doing is ensuring that he takes the wrong decision, against his own best interests. That is what happened. A very large number of people were impressed by the contracting-out terms, especially the 2 per cent. premium. They therefore moved over without considering the real arguments and ended up in a very unfortunate situation. That is not true of everyone, as I said, but it applies to as many as 2.5 million people; that is an awful lot of people and something about which the House should be concerned.
I seem to remember that the hon. Member for Havant and I have discussed the matter before. He will remember the National Audit Office report that calculated that the Treasury was taking on a burden of about £9.3 billion, if I remember rightly, in the expectation of great savings later, which turned out to be only £3.4 billion. Even if we take a Micawber approach to the good housekeeping of Government, it is clear that we were invited to endorse an extraordinary piece of arithmetic and a bad buy for the taxpayer. Tragically, it also ended up being a bad buy for many of the people who took the inducement—I use the neutral term—that was offered.
Does the hon. Gentleman accept that we are talking with the benefit of hindsight? One of the reasons for the relative imbalance is that we have had a world recession. Stock markets and property markets have failed to perform in the way in which we had hoped, which has affected with-profits life insurance policies and pension policies. Had the expectation that markets would continue to improve been met, the hon. Gentleman would not be making the analysis that he is making today.
I accept that there has been a substantial movement that has complicated the calculation, but, in fairness, it was said by many people at the time that dangers existed and problems might well materialise. The trouble was that no one referred to it directly—it was not included in Government guidance and I fear that within the industry no one pointed out those dangers to the people who were going to put themselves in that risky position.
Does my hon. Friend share the view of other Opposition Members, who are astonished that Conservative Members should seek to defend the indefensible? Does he agree that the fact that people lost out had nothing to do with the world recession? People on low pay lost out because the onerous charges that were levied by insurance companies far outweighed any benefits that they received from their new pensions.
I shall come later to onerous charges. I have long since lost my ability to be astonished at Conservative Members' defence of the indefensible; I do not confine that remark to the narrow technical subject of pensions.
I refer the hon. Member for Bournemouth, West (Mr. Butterfill) to the comments of National Association of Pension Funds, with which he will be familiar. Its memorandum in response to the Green Paper states:
The Government must be prepared to explain to the public just what a personal pension means, especially in terms of the mechanism for buying one (including full disclosure of administration and commission costs), the uncertainty of performance (as their value must perforce be variable with market conditions), and the lack of any guarantees or discretionary protection.
If those things had been pointed out by the industry, by those selling and by the Government when they advertised the option, some of the sadness and disadvantage to which I have referred might have been avoided.
The association's memorandum continues:
Stringent investor protection is essential if the proposals for personal pensions are to gain any semblance of public acceptability. We do not believe that sufficient protection to investors in personal pensions can be provided through the self-regulatory framework being devised".
I agree with all but one part of that quote. The association said that the proposals would not have a semblance of public acceptability. Sadly, the public were not that wise and they took the proposals at face value. That is one reason for our present difficulties.
The hon. Member for Bournemouth, West challenged me about what was being said when the proposals were introduced. Slightly later, in March 1990, the Life Assurance and Unit Trust Regulatory Organisation, in its enforcement bulletin No. 7, was extremely critical of the industry's—not the Government's—advertisements, It stated, somewhat optimistically:
few advertisements indicate, with any degree of precision, for whom opting out may not be suitable and accordingly an inappropriate contract might be sold which would not be in accordance with the high standard of conduct expected by Lautro of its Members.
Members must ensure that they do not accept applications in respect of opting out unless they are certain that the applicants, who respond to such advertisements, have been given details of all the information pertinent to their situation prior to making any decision to opt out of SERPS.
That warning from a self-regulatory organisation was largely unheeded. It might well have been a warning and a condemnation of the Government's advertising programme as well as that of the industry.
The Government's approach has been thoroughly unsound. No doubt they will now argue that a change is coming: that we no longer have the 2 per cent. premium to which the hon. Member for Havant referred; that there is now a 1 per cent. premium for people who are over 30; and that we shall soon move to age-related rebates. I accept that there is an argument for that, but the changes are an implied plea of guilty. It is interesting that the new advertising campaign, which states that people should read the small print of private pension policies, has not been funded to the extent of £1.2 million but in the rather more modest sum of £100,000. There is a little less energy and enthusiasm behind that campaign. I warn hon. Members that the damage will continue unless information and advice are genuinely and impartially given.
There are advantages to SERPS, which has been undersold. If that continues, the spin that is put on the sales pitch by representatives of the private pensions industry will still continue to tempt the unwary.
The hon. Member for Birkenhead (Mr. Field) is not in the Chamber at the moment, but I wonder whether the spokesman for the Opposition, the hon. Member for Glasgow, Garscadden (Mr. Dewar), will comment on how the Opposition view his pamphlet entitled "Private Pensions for All". Will the Opposition take that pamphlet on board or are they still waiting for the social commission for justice to determine their policy?
The Commission on Social Justice is a very social commission, but the hon. Gentleman is as confused about its title as he is in his attempts to divert me. If he is interested, I shall send him an interesting speech that I made the other day on that and related subjects. I shall not go into a general tour d'horizon as he has invited me to. I am talking about what happened to those who contracted out of SERPS and also occupational pension transfers. I know that that subject will interest the hon. Gentleman.
All I am saying to Ministers is that they have a problem with what has happened with SERPS and they bear a measure of responsibility for it. The Secretary of State and his colleagues have evinced malice towards SERPS in the past. The 1988 raid, which we all remember, was masterminded, if that is the right word, by the present chairman of the Conservative party. Hostile forces are still gathering round, including the deregulation task force proposals for reform. I hastily concede that the proposals have not yet been adopted by the Government, but they chime in with a lot of other things that are happening. Take paragraph 357 of a Department of Social Security paper:
Consider replacing SERPS entirely with occupational and personal pension schemes.
There has been a lack of enthusiasm and an underselling of SERPS, which has made a significant contribution to present problems.
We understand that the Securities and Investments Board will move on to consider the problems of those who have contracted out of SERPS once it has completed its complicated and important inquiries into transfers from occupational pensions. It would be helpful if the Minister could confirm that and comment on how he imagines compensation can be given to those who have clearly lost out and been disadvantaged. It may be that the industry will have to foot that bill, but the Government have more than a moral responsibility to ensure that that happens. I am interested to learn whether the Minister is now prepared to accept that mistakes were made—that there was error and a failure to give proper warning—and what are his proposals for making redress.
I shall deal now with occupational pensions and the way in which bad advice and sharp-selling techniques have resulted in people transferring from occupational to personal pension schemes. Some 11 million people are in occupational schemes. It will be no surprise to hon. Members to know that we regard their strength as vital. It is important that those who have been involved in occupational pensions and have contributed to them can look forward with confidence to retirement. There is no doubt that public confidence was shaken tragically by the wicked fraud carried out by the late Robert Maxwell, but there is another scandal of which we are becoming aware and which may be of greater proportions. It may be cumulatively more damaging. It is less dramatic because it does not involve the death of an individual at sea and the same smell of scandal. There is not one person on whom the spotlight can concentrate, but the system has allowed many people to be tempted. It has allowed many people in the industry to abuse trust and make a mockery of professional ethics. Many people have left occupational pension schemes and are prejudiced in their retirement prospects as a result.
This is not a matter for fine judgment. We all know that LAUTRO has said that it is hard to conceive of circumstances in which it is right for someone to leave an occupational pension scheme in which he or she could have a continuing interest in order to transfer to a private pension policy.
There are problems of charges, commissions and instability of outcome, but the essence of the problem is that people have surrendered the employer's contribution. That makes no sense, yet it has happened on a wide scale. Even where a person has left the industry and is in an occupational pension scheme in terms of preserved rights, he or she must still be extremely careful before attempting to move. In the mining industry, for example, some people have been taken to the cleaners in a deplorable way by moving to a personal pension scheme that looks attractive on the surface but provides no widow's benefit, life assurance cover or any of the other factors that would be highly relevant to the individual concerned.
As the hon. Gentleman will discover if I am lucky enough to catch your eye later, Mr. Deputy Speaker, I have sympathy with much of what he is saying. But does he accept that many miners, for example, left occupational pension schemes because they were disgusted with the treatment that they had received and wanted nothing whatever to do with the mining industry in future?
I shall wait with interest to hear what the hon. Gentleman has to say. But to try and shift the blame and suggest that people cut off their noses to spite their faces in a fit of pique is extraordinary. If people were in that turn of mind, those selling policies had a duty of care to advise them that they should do nothing in haste or anger. I am afraid that that duty of care was not exercised.
I was a member of the trustees of the miners' pension fund. We had to counteract the propaganda that was put out to those individuals by giving them the facts. I admit that the situation had been going on for some time and we did not spend a lot of money on advertising, as those people did. But I assure my hon. Friend that we gave the facts and tried to counteract the propaganda. There is no way that people just opted out. When redundancies set in, the salesmen came in.
I accept entirely what my hon. Friend says. I know, from my personal contacts, of the efforts that were made by trustees of the miners' pension fund and many individuals in the industry to try to make good the evident lack of impartial advice available to those contemplating a transfer.
It is important to estimate how many people are involved in transfers. I accept that the figure that is often bandied around, of up to 500,000 people, may be an exaggeration. That number of people is potentially at risk, but I am quick to concede that we do not know how many are actually at risk and have suffered loss. Everyone who has had the staying power to remain in his or her seat for a debate of this kind will be familiar with the KPMG report commissioned by the SIB. Of 735 files, which were not taken from the down side of the industry—press reports say that both Standard Life and TSB were among the companies sampled—astonishingly, only 9 per cent. showed evidence of substantial compliance with the guidance and acceptable standards. In 77 per cent. of cases, no real financial analysis was made of the potential customer's situation; in 95 per cent. of cases, agents of insurance companies failed to comply with good practice; and in 89 per cent. of cases, independent financial advisers failed to comply with good practice.
Those are frightening statistics and a frightening profile of how the private sector carries out its duty of care to potential customers. As I said, it is not fringe companies but established blue chip firms that are involved. For example, a preliminary investigation by the Select Committee has revealed that Standard Life has 75,000 transfers, 15,000 of which are through direct sales and 60,000 of which are through independent financial advisers. I notice from its returns that Legal and General is having to make provision against compensation. The Refuge group is also making provision of £11.6 million in its accounts for 1993. That is an enormous sum given that its declared profits for that year are only £24.3 million. Many other companies, including National and Provincial, are also having to make provision in their accounts.
Yesterday, we had the extraordinary spectacle of Norwich Union—a household name of, I hasten to say, high standing—taking 800 of its staff off the road for a month for intensive training in selling techniques. That could be said to be good news, but it is also an indictment of what has happened that a company of that stature must take such extraordinary action.
The Economic Secretary, who is on the Government Front Bench today, was a member of Standing Committee E in 1986 and will remember the assurances given by the now Home Secretary that such a thing would never happen. The Opposition withdrew amendments because we were prepared to accept those assurances, despite the fact that the now Economic Secretary was busy lobbying Labour Members outside the door of the Committee Room to support amendments being moved against his own Minister. And he is now a member of the Government.
I must simply accept from my hon. Friend what happened on that occasion, as I was not there to see it. Perhaps the Economic Secretary, who will close this debate, will deal with that interesting insight into how matters worked in those days. I will certainly be in my place to hear him and I am sure that my hon. Friend will be in his place, too.
I do not wish to spend much more time discussing examples, as they have been in the press and we have all seen them. They include teachers, policemen, miners and firemen. Some are now receiving compensation payments of £20,000 and more—I saw one of £50,000—to replace gaps in their occupational pension contributions, which may have run for only four or five years. The case histories are frightening; they are also frighteningly familiar—sweet-talking, diagram-drawing, word-juggling salesmen persuading people to take action because they were interested only in the kill and the commission that it brings. That is the only conclusion that can be drawn from what has happened. It is a cruel deception.
Sometimes, an ex-employee would be brought in to persuade his former workmates to move to private pension policies. I remember a case of a senior shop steward who, sadly, had been made redundant but saw a way out of his financial difficulties by taking a job with an insurance company and flogging policies to his former colleagues. The fact that he did not last long with the insurance company adds to the despair and dishonour of the story.
May I confirm what the hon. Gentleman has said? The insurance companies were taking on redundant miners simply to get from them the names of other redundant miners so that they could approach them and sell policies to them.
I am sure that the Secretary of State will condemn that when he has the opportunity.
Such problems are built in when an industry's sales force lives by commission. It then becomes extremely difficult to create a system that holds the interests of the customer in high regard. Until we can move away from that heavy dependence on commission, I fear that even the most respectable firms will have great difficulty in performing as they should.
There is even something about the language. It seems an odd point to make, but I noticed that Hill Samuel, which is part of the TSB group, is selling its financial services arms and handing over its direct sales force to Allied Dunbar, a subsidiary of BAT. The chief executive of Hill Samuel, Mr. Hugh Freedberg, explained why he was selling to Allied Dunbar by saying that a life company needed
a warm, captive customer base".
He explained that he did not feel that he had a warm captive customer base.
Perhaps I am being over-sensitive, but that seems an interesting insight into the attitude of very senior management. At the end of the day, it is they who must take responsibility for what happens on the ground. They cannot shrug it off by saying that a salesman went out of control or went native. It is an insight into how senior management view the industry.
I welcome some of the changes which no doubt the Minister will mention: the SIB report, a cooling-off period of 14 days, a duty to check on the lump sum that would result from the occupational pension scheme and a reasons-why letter. All that may be helpful, but it is also necessary to look at commissions and charges.
I have made some inquiries, as best I can, with people within the industry. I understand that when buying a policy on an annual basis, it is common to pay 50 per cent. of the first year's premium in commission. There may be another 20 per cent. for supervisory commission and another 20 per cent. for administrative costs, advertising costs and so on.
The Minister may be interested to hear about an odd happening a few years ago, when the Office of Fair Trading decided to inject competition into the industry. It therefore removed the need to stick by LAUTRO and agreed rates. Commission rates then went up. They went up because there is no competition if customers do not know what they being charged; they are there to be plucked.
Paying lip service to competition was damaging the interests of the buying public. I believe that we must have transparency and disclosure. I welcome the fact that new rules will apply from 1 January 1995, but it is not enough. We must work harder to give people the right advice, to make sure that they know the facts instead of having to look at the complicated tables they might find in Money Management.
People need more accessible league tables. The Minister and his colleagues are fond of league tables. More accessible league tables, on performance for example, might be a useful tool.
Does the hon. Gentleman acknowledge that sales on commission only were one of the root causes of the problems surrounding homes equity schemes, which we have debated at length in the House? Salesmen in receipt of commission only, brandishing respectable cards from distinguished insurance companies, were able to hoodwink innocent people into parting with large sums of money. That led to the collapse of those schemes and all the problems and resulting heartache.
I agree entirely. There was downright cruel abuse. The trouble was that the self-regulatory organisations in the industry could not get to grips with it and stop it. That is one of the worries; it is a good example of treating too easily all the talk about a new start with a new SRO.
Finally, I turn to effective regulation and the need to examine commission charges. I understand—and I underline that word—that there are statutory powers to set charges that have been used only in a limited way. Perhaps the Minister will confirm that those powers exist and say a word or two about his intentions in that respect. There is no doubt that the abuse of commission and the lack of transparency are a real problem.
My contention is that the present system of regulation has failed. The Minister may be tempted to argue, as others have told me privately, that massive evidence of abuse is an advertisement for self-regulation. I have been told that, without the success of self-regulation, we would never know that people were being done and diddled left, right and centre. I hope that the Minister will not use that argument and will recognise that it does not wash.
There have been departures from acceptable standards on such a widespread scale that the problem is now endemic. As the hon. Member for Romsey and Waterside (Mr. Colvin) made clear, the SROs in profusion, lined up in column of route, have been unable to do anything about it.
The latest one is the Personal Investment Authority, the PIA, which perhaps is just about to reach the starting line. I do not disagree that taking FIMBRA, LAUTRO and parts of IMRO and simplifying the system may be better than what went before. My hon. Friend the Member for Edinburgh, Central will say more about this, but the history of the PIA so far has not been encouraging. We have lost one chairman, Sir Gordon Downey, and acquired Joe Palmer of Legal and General. I am not sure where the balance lies, but it has also spent about £6 million on starting-up costs and all we have is a first-class row between various people about whether they want to have anything to do with it. The Prudential, for example, was a big player in the market and takes the view that direct regulation without self-regulation is the right answer.
We also know that Standard Life has withdrawn its support from the PIA. I have seen the memo that Jim Stretton on behalf of Standard Life gave the Treasury and Civil Service Committee. Talking about the present system, he said:
The resulting structure is unnecessarily cumbersome, inadequately accountable and will, because it is still called self regulation, be less trusted by the public. In addition the multi-tiered approach to regulation is unlikely to give rise to the firmness of purpose which I believe to be essential. I don't think we can go back to true self-regulation, since it would appear to the public, albeit unfairly, that the industry has acted to minimise its own regulation … Regulation should be carried out by a single tier body which, if it is not part of a Department of Government, should report directly to a Department of Government".
It is clear that the PIA will have a large job on its hands convincing not only the public but part of its own industry.
I see no advantage in having an SRO. I have every sympathy with people who say that there has to be a substantial public interest representation on the board. I also understand the interests of those who say that what is happening is no longer self-regulation. In any event, it is quite clear that there is little point in having the SIB if it has endlessly to negotiate and compromise with an SRO beneath it before it can make any progress. Whatever happens to the PIA, direct regulation is inevitable.
The Secretary of State was probably not in the House—I was in the House only by chance—on 12 January when the Economic Secretary was speaking. I heard a remarkable series of exchanges about Lloyd's. I shall not go into that. The people who spoke made it clear that they had had bruising personal experience and in that sense they were parti pris. The hon. Member for Reading, East (Sir G. Vaughan), a senior ex-Minister in a Conservative Government said:
It is totally unreasonable to expect the self-interested to be self-regulating."—[Official Report, 12 January 1994; Vol. 235, c. 288.]
That in some ways encapsulates the difficulty and is a view with which I have a good deal of sympathy.
Pensions are of course enormously important. It is a cliche to say that they are arguably the most important purchase an individual makes in his or her life. Even a modest money purchase policy will build up a fund of £100,000 or more in its lifetime, but there is no area where ignorance is a greater enemy and in which it is more common.
People can contract back into SERPS if they know about DSS form APP2, if they are aware of the arguments and the reasons and if they know about the actuarial projections, but few in fact do. Many people—certainly it was true of me and arguably it is still—are not aware of the complexities, at least in full. They tend to buy a pig in a poke. They need protection and they have not had it. I do not object to the state promoting investment and saving for retirement; in fact, I welcome it. I recognise that, in 1992–93, tax relief on employees' contributions was worth £2.3 billion, and that tax relief on employers' contributions was worth £2.7 billion. The concession that makes investment income in a pension fund tax free cost £5.7 billion. That amounts to about £10 billion altogether—a lot of money, given in a very important cause.
We must do more than that, however. We must offer the right framework and guidance, and try to avoid a repetition of the deplorable confusion that was predicted and has come to pass. We also have a duty to try to ensure that proper compensation is offered to those who have suffered.
The Minister is bound to have read an article by Norma Cohen that appeared in the Financial Times on Monday 28 February. I read it with interest, because it gave an account of a gathering that I remember very well—at Chevening in, I think, July 1992.
Indeed I was not: that is why I am so curious about what happened. I do.not even know who was present, but many civil servants and Ministers were. Oddly enough, I was told that Dr. Madsen Pirie of the Adam Smith Institute was present; I wonder whether he has had some say in the approach to these matters.
I say that because I must warn against over-enthusiastic blanket endorsement of every action taken by the private sector in regard to pensions. Let me draw the Minister's attention to a "radical agenda", edited by Dr. Pirie, which was published last year. According to that agenda,
For fully funded private schemes much higher figures would be achieved"—
in return per annum, that is.
Indeed, calculations show that if contributors paid half as much into a private scheme as they pay to the state plan, they could be ten times better off in retirement as a result.
I suppose that the phrase "could be" is quite important, but if that is an example of the kind of advice that the Minister has been listening to, I am not surprised that we have got ourselves into considerable difficulties.
We are told by the FT that
On the opening day of a strategy session called by Mr. Peter Lilley, the social security secretary"—
whom I see sitting before me—
a group of ministers and civil servants was alerted to the potential cost of persuading people to opt out of occupational and state pension schemes into personal pension plans.
The warning came from Mr. David Clark, then deputy secretary for pensions, in a paper to the assembled group … A minister recalled: The paper said that, in some sense, personal pensions have been a tremendous success"'—
that is fair enough—
'''but there are a few time bombs ticking away there.' The time bombs had been set ticking just eight years earlier when, as a former official put it, the government became 'mesmerised' by the allure of personal pensions".
If such a time bomb was indeed identified at that Chevening meeting, it is interesting to contemplate what Ministers have been doing to defuse it and to help those who have already been damaged. The metaphor has problems, because presumably the time bomb has not gone off—or perhaps it has, with a series of explosions: there have certainly been casualties.
There is a clear duty to guide and protect, and the Government are culpable because they have failed to discharge that duty of care. The House—and, more important, the country—will want to know what they intend to do about it.
I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
'welcomes the extension of individual choice of pension provision brought about by the Government's pension reforms, which has resulted in substantial increases in funded pension provision through both occupational and appropriate private pension schemes; welcomes the Government's steps to ensure the effective regulation of occupational pensions and to ensure that individuals have adequate information to make informed choices about provision for their retirement; and welcomes the measures being taken by the Securities and Investments Board, with Government support, significantly to improve investor protection.'.
I welcome the opportunity to debate this important issue. The Government's objectives are cleat to ensure a wide range of choice for people to provide pensions for their retirement, to develop a secure framework within which informed choices can be fairly made, and to encourage the growth of fully funded private pension provision on top of the basic state pension. Unfortunately—although the hon. Member for Glasgow, Garscadden (Mr. Dewar) made some valid points, with which I shall deal—the Opposition's motives are equally clear.
The Opposition do not like private pensions; they would prefer people to remain in or return to the state system. They latch on to legitimate concerns about mis-selling, solely to frighten people back into the state earnings-related pension scheme. Today's debate is simply an exercise in scaremongering: the hon. Member for Garscadden did not mention any of the steps being taken by the SIB to reassure people that they will suffer no loss as a result of joining a private scheme. Hon. Members will be able to check that in Hansard.
By contrast, precisely because we favour private pensions, we are genuinely determined to tackle past problems of mis-selling and to prevent them from recurring. I shall explain shortly what is being done; first, however, let me remind the House of the position before the 1988 reforms. Then, many people had good reason to be unhappy about the choices—if any—that were available to them. Private pensions often just did not meet people's needs; pension rules reflected an outdated assumption that people stayed with one employer throughout their working lives, and anyone who changed jobs was particularly vulnerable.
Even if an employee moved after as long as four years in an occupational scheme, all his employer was required to do was return his contributions to him. The employer was not required to provide him with a pension when he retired. If the employee left behind his rights to a pension, he would be given a frozen handshake: the value of any pension rights that he had built up could be set in ice, to be melted away by inflation so that precious little was left by the time he retired. An employee who changed jobs did not have the option of taking the value of his pension with him.
We ended that unfairness, introducing three new rights for people who changed jobs. We gave people the right to a deferred pension after just two years in a job; we gave those who changed jobs the right to have the pension that they left behind protected against inflation; and we gave people the right to take the value of their accrued pension rights with them when they moved jobs. In 1988, we also gave people a wider range of choice in regard to pension arrangements, so that they could choose what best suited their needs.
Before my right hon. Friend ends his catalogue of the considerable improvements in pension legislation that the Government have made, may I ask him a question? Does he agree that far too many elderly widows have no income other than what the state provides, because the occupational pension died with their husbands?
I am sorry; my hon. Friend must have meant that that used to be the position. I assumed that survivors' rights apply in such cases.
Following those changes in 1988, individuals can now join an occupational pension scheme if their employer runs one. They can invest in a personal pension—[Interruption.]
Such people can invest in a personal pension, or they can choose to stay in SERPS. We gave people the right to top up their pensions, either by contributing extra to their employer's scheme or by making free-standing additional voluntary contributions. We also made new choices available to employers: we introduced new arrangements to allow them to set up contracted-out money purchase schemes, and we made it possible for them to contribute to their employees' personal pensions.
There should be no doubt about the overall success of our reforms. When personal pensions were introduced, critics predicted that they would grow at the expense of occupational pension provision; the opposite has happened. There are now more occupational schemes, including 16,000 new employers' contracted-out money purchase schemes; they cover just as many people as before the introduction of personal pensions. Now, the 5 million holders of personal pensions are additional to the 11 million members of occupational pension schemes.
More people are committing more of their own money to boost their retirement income. When we launched our reforms in 1988, individuals and their employers contributed just £260 million to personal pensions; last year, the annual amount invested had grown nearly tenfold, to £2.5 billion. Members of occupational schemes have also been saving more for retirement. The growth in investment in top-up pensions—free-standing additional voluntary contributions—has been dramatic.
In 1988, individuals committed just £20 million to free-standing AVCs. The amount invested last year had grown over twentyfold, to £420 million.
Is not the Secretary of State being too modest in his claim about the reason why most people have moved to alternative schemes? It is due almost entirely to the fact that the Government have undermined all faith in the basic state pension by cutting it almost every year that they have been in office.
That is nonsense. If the hon. Gentleman is contradicting the point made by his hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) that people should have been opting out because it is to their advantage to do so, he should discuss that with Opposition Front-Bench Members.
The figures that I have just given reveal that there has been a massive increase in provision for pensions. Employees and employers invested £30 billion in pensions in 1992. Nothing could demonstrate more clearly the success of our reforms in building a solid foundation of funded pension provision for the future.
In the United Kingdom, we now have a healthy and diverse mix of pension provision—state and non-state, occupational and personal, salary-related and money purchase. Nearly 11 million people now belong to occupational pension schemes. Five million have personal pensions—10 times as many as originally forecast—and over half of them are under 30.
We want to make it attractive to people of all ages to make private provision, and to encourage even more people to do so. Private provision is good for the individual and for the economy. When the state finances pensions, nothing is saved or set aside for the future. This year's contributions are used to pay this year's pensions. It is pay-as-you-go. By contrast, in private schemes this year's contribution is saved and invested. It goes into British industry to build up the assets that will pay for the pensions in 10, 20 or 30 years' time, when people retire.
Very few of our European partners have developed funded private pensions on anything like the scale that we have. As a result, Britain is far better placed than most of our partners to face the growth in the number of retired people in the next century without imposing a huge tax burden on the economy.
Over £500,000 million is invested in pension and life insurance schemes in the United Kingdom at present. That is more than in the rest of the European Community, in similar funded schemes, put together.
In relation to the £500,000 million invested in life insurance and pension schemes, is not my right hon. Friend concerned, like me, that some £80 million of that went missing and was under the management of a man who was promoted recently to the Opposition Front Bench for his connections in taking £80 million away from the Maxwell pensioners?
I cannot comment on individuals, but I am sure that everybody will work out the wider context in which my hon. Friend is commenting.
European countries that have less-developed private funded pension schemes are now seeking to emulate our success. They are only now beginning to address the problems that we began to address a decade or more ago. In France, the state pay-as-you-go scheme is in massive deficit. Last month, the French Government published plans for funded private pension schemes not unlike those in Britain. The previous Italian Government introduced measures to reduce the burden on their state scheme, and established tax incentives for private pension funds.
I will not get involved in that little dispute.
In Spain, debate is under way about the problems of pay-as-you-go schemes and the need to expand private pension provision. Across Europe, other Governments are following the lead that we have set.
There are of course concerns, and four have arisen about private pensions. First, there is the security of pension fund assets. The Maxwell affair raised serious questions about the security and regulation of occupational pension schemes. That is why I established the pension law review committee under Professor Goode. The report has been widely welcomed, and I have been consulting since then with a view to legislation which will reassure people that they can have the fullest possible confidence in the security of their pensions in the future.
The hon. Gentleman will know that I cannot prejudge the parliamentary schedule. I can say, in the privacy of this exchange between the hon. Gentleman and myself—I hope that it will be overheard by the Lord President—that I hope that it will go ahead next year.
Subject to the Queen's Speech.
The second area of concern is the mis-selling of personal pensions to people wrongly advised to leave their occupational pension scheme. The Securities and Investments Board has established that the standard of compliance with record-keeping requirements and so on has been poor. That is deplorable, but not, in itself, evidence that clients were wrongly advised, or that they suffered financial disadvantage.
The Securities and Investments Board is now carrying out a major exercise to establish the extent of the mis-selling. Clearly, any past mis-selling must be put right. Anyone whose future pension arrangements have been jeopardised must have a remedy. My right hon. and learned Friend the Chancellor has made that clear. The chairman of the Securities and Investments Board gave a public commitment in December when he said:
I am confident that the great majority of firms in this business will co-operate and ensure that none of their customers will suffer as a result of bad advice. In any case the regulators will use their powers, as necessary, to ensure appropriate remedies.
As my hon. Friend will know, we have taken steps. We set up the Maxwell pensions unit. I hope—and I believe that the trustees now foresee—that there will be sufficient recovery of assets to restore the pension rights of those who had them put at risk as a result of the Maxwell scandal.
The right hon. Gentleman has just quoted a statement from Mr. Large. If he looks at the proceedings on the Financial Services Bill, Standing Committee E, November 1986, he will find almost exactly those words used by the Minister responsible for putting through that legislation. If we had an assurance then from the man who is now the Secretary of State, why should we any more believe today a statement by the chairman of the SIB?
That could not have been the case, because, at the time to which the hon. Gentleman is referring, the situation did not exist. If he had listened carefully, he would have heard that Mr. Large was referring to mis-selling that has occurred. He said:
the regulators will use their powers, as necessary, to ensure appropriate remedies.
Existing personal pension investors need not be alarmed; nor should they be panicked into any precipitate action by scaremongering from Opposition Members.
The regulatory bodies have already acted to prevent and deter future mis-selling. Yesterday, we heard that the Norwich Union suspended its sales force because its staff training scheme did not meet new standards. That followed a monitoring visit by the authorities. An unauthorised financial adviser was recently gaoled by the High Court for flouting an SIB ban.
Regulators have shown themselves ready to impose substantial fines—over £700,000 in one case—where companies have broken the rules. The SIB's regulatory steering group published last week its first report and recommendations on future preventive measures to ensure high marketing standards. I am glad that the hon. Member for Garscadden welcomed that. Once the board has completed its investigations, there will be a full report.
At the end of the day, no one is better placed or has greater interest in monitoring the progress of pension arrangements than the individual to whom they belong. That is why the Government are committed to giving individuals proper access to information to help them choose the right pension and monitor its performance. We have taken action in a number of ways.
Following directions from my right hon. and learned Friend the Chancellor, the Securities and Investments Board recently published proposals to give greater transparency to charges and commissions. The proposals will begin to take effect from July this year. In future, anyone selling personal pensions must reveal to potential investors how much he stands to gain in commissions by making a sale. Illustrations of personal pension benefits must reflect the actual charges levied by a provider, so that investors can compare the cost of different products.
On 15 March 1990, I complained during Prime Minister's Question Time about what I described as the wicked mis-selling of personal pensions. Many other hon. Members had complained before and have done so since. The Prime Minister rejected the charge at that time. Why on earth have the Government and the regulatory bodies not taken action until now?
The regulatory bodies are taking action, and promising to remedy the situation where mis-selling has occurred.
As I said, we believe that the effective disclosure of charges and commissions is the best way to protect consumers from overpriced products and the dangers of biased advice in future. The Securities and Investments Board's proposals are a solid step towards improving the marketing of personal pensions and helping investors to make well-informed decisions.
My Department has also taken action to help potential investors to make informed choices about personal pensions. Last June, we published a new guide for people who are thinking about buying a personal pension. The guide advises people to consider all their pension options, including any employer's scheme that might be available, before making a decision.
If an individual decides that a personal pension is his best choice, the guide advises him to shop around before choosing a particular scheme. A month-long national press campaign to advertise the guide has just finished. Guides are available from citizens advice bureaux, and we have set up a special telephone line for individuals to order their copy directly. So far, more than 250,000 copies have been distributed.
We have also published a guide for people who have recently taken out a personal pension plan to help them get the best out of their scheme, and we shall shortly issue a guide to personal pensions for self-employed people.
I can also announce that we shall shortly be issuing guidance for employers who want to give advice to their employees about pensions. The Financial Services Act 1986 requires that anyone carrying on the business of giving financial advice should be authorised. Apparently, some employers mistakenly believe that the Act therefore constrains them from advising their employees on pensions. For most employers, that will not be the case as long as they adhere to simple rules.
Employers can give all the help and advice they want about their own scheme without breaching Financial Service Act rules. They can also advise employees on personal pensions in general as long as they steer clear of the merits of any particular pension scheme. Our guidance will help employers who want to help their employees make informed decisions about their pension.
Will my right hon. Friend accept that his remarks are very significant, because many employers believe that the Financial Services Act inhibits them from giving such advice? His statement will encourage them to give the advice that many have wished but have been afraid to give.
I am grateful to my hon. Friend. The leaflet, which is crisp, punchy and comprehensible, will shortly be available. People will realise that they are able to give advice which they thought—mistakenly—they were not able to give.
The third concern is that people may have opted out of the state earnings-related pension scheme into a personal pension when it was not in their interest to do so. SIB's investigations so far have concentrated on the sale of personal pensions to those transferring out of occupational schemes. The chairman of the SIB has said that he has no evidence so far of systematic non-compliance with selling practice rules in cases of movement from SERPS to appropriate personal pensions, but the SIB will be examining the matter, and my officials are already discussing with SIB officials how to handle this phase of the work.
When the SIB has completed its investigations, we shall know whether any poor advice has been given to those contracting out of SERPS, whether any investors have been disadvantaged, and the extent or scale of any problems.
Why does the Secretary of State omit from his list of things that are wrong the major problem, which is that a huge number of people cannot look forward to a reasonable income in retirement? A report entitled "Better Pensions for All", written by Bryn Davies—an acknowledged expert—and published by the Institute for Public Policy Research, estimates that 9 million working people who need to make additional provision for their retirement cannot look to existing forms of provision for a practical way of doing so. A huge number of people will not benefit at all.
That is rich, coming from a member of a party that has been critical of all our measures to extend the availability of pensions. In 1979, only 43 per cent. of retired people had an occupational pension. The figure is now more than 60 per cent, and for newly retiring people it is nearly 70 per cent. The figure will be higher still when joined by the figures for those with personal pensions.
I think that it was the Under-Secretary of State for Social Security, the hon. Member for Richmond, Yorks (Mr. Hague) who suggested in a parliamentary answer that 60 per cent. of people who had contracted out into an APP were not paying an additional contribution, which is a matter of concern. Because of the charges and costs, will those people have any significant pension at the end of the day? Has the Minister any comment to make?
Obviously, I want more people to make ever better provision, appropriate to their resources. I am glad that significant numbers of people go beyond the minimum, which is more or less the equivalent of what they would receive under the state scheme. They will have better provision by opting out and topping up. One company—Prudential—recently revealed that 70 per cent. of its investors with personal pensions are paying more than the minimum, which is equivalent to SERPS and financed by the rebate. We hope that others will increase their percentage, too.
Much of the discussion has been due to misunderstanding of published figures and of remarks by Coopers and Lybrand Deloitte. Following recent articles, Coopers has issued a press release which aims to
set out the background to the reports which have appeared in the press in recent days which have misrepresented our views … there must be a real danger that unnecessary distress could be caused to those people affected".
I agree. Much of the coverage reveals a misunderstanding of what the figures show.
It is important to remember that the figures refer to a single year. They therefore represent only a snapshot at a point in time of the profile of personal pension holders in that year; but it is the earnings over a lifetime that determine an individual's pension. Some commentators have also focused on the number of investors shown in the table as having zero earnings in the particular year, and suggested that those personal pensions must therefore have been mis-sold. That is not necessarily so.
I shall continue a little before giving way.
If a person became unemployed in 1991, having started his policy in 1988 while he was working, he would appear in the tables in the zero earnings column, but that would not necessarily mean that he had been mis-sold a personal pension. As soon as the individual began working and paying national insurance again, DSS contributions to his personal pension would resume. Of course, while he was not earning, he would not in any event have been building up any pension entitlement had he not opted out of SERPS.
While the Minister is attacking the accuracy of Coopers and Lybrand Deloitte's conclusions, would it not be fair of him to state its main conclusion, which is that 2.4 million people are worse off because they opted out of SERPS and into a personal pension? He may be right and the figures may be inaccurate—it could be 3.4 million or 4.4 million people.
The hon. Gentleman should read the press release. He would then find that Coopers and Lybrand Deloitte does not agree with that analysis. It believes it to be mistaken and says that, because of the performance of the stock market and the value of the opt-out rebate that people receive, there is every likelihood that people who took out a pension during the period of the rebate—up to last year—will have a pension which is to their advantage.
Will the Secretary of State comment on the following statement from the Coopers and Lybrand Deloitte press release? It states:
Given the impact of commission insurance charges, this means that contracting out is now only likely to be of significant benefit to higher-paid people in their 20s and 30s who are prepared to take some investment risk.
Does he accept that suggestion?
The hon. Gentleman should look at the whole press release. He will find the point that I have just made—that, in general, people in that period would have received an advantageous pension. What we all know about the point of age, to which the hon. Gentleman referred, is that we are pledged to, and will, introduce age-related rebates designed to make contracting out attractive to people across the whole age range. Also, in the interim period, we introduced the 1 per cent. additional rebate to extend the viability of the existing system until that age-related rebate structure is in place.
I have given way an awful number of times. Could the hon. Gentleman ration himself and possibly intervene again if he is really desperate? [Laughter.] I have given way infinitely more than the hon. Gentleman ever does.
The new opportunities and flexibilities that we have brought to pension provision are of clear benefit to millions of people. If there are dangers that the availability of choice can be abused, our response is clear. It is to ensure that past errors are put right, to ensure that further safeguards are put in place for the future and to ensure that sufficient information is available for sensible choices to be made.
That is the fundamental difference in the debate between Conservative Members and Opposition Members. Our response is to make choice better informed. Their response is to assert that choice should never have been allowed in the first place. Our policy is to encourage funded provision which reduces the burden on future generations. Their policy is to keep people dependent on the state and to add to the commitments of taxpayers in the future. Our approach to alleged mis-selling—
In a moment.
Our approach to alleged mis-selling of personal pensions is to see that it is investigated and, if necessary, put right. The Opposition's approach is to seek political capital from it and to alarm millions of investors unnecessarily. I entirely recognise that the hon. Member for Birkenhead (Mr. Field), as mentioned earlier, is unusual in his party, in that he wishes everybody to have a compulsory private pension. Those are interesting ideas. It is a reflection on his Front-Bench spokesmen that they are so uninterested in those ideas.
We shall see how the Labour party fights the next general election: that is the crucial point.
I intervene as somebody who believes that we need a system in which people are in the state scheme and in a second pension scheme as well. I tried to intervene when the Secretary of State made the point that the Government were concerned to reduce liability to taxpayers. I want to bring him back to the SERPS debate.
Given that phrase about responsibility to taxpayers, does the right hon. Gentleman not believe that he has a responsibility to offer advice to those who are currently on low incomes and who may receive a low income over the next few years, that it is not in their interest, or in the interest of the taxpayers, for them to opt out of SERPS? Does not the responsibility go beyond the individual? Should not the taxpayer, at the end of the day, also have some say, whether it is wise or unwise to opt out, and does not the right hon. Gentleman have a duty to exercise that responsibility on behalf of taxpayers?
I mentioned that we have published a leaflet, made it widely available and advertised it heavily, to enable people to give advice on the sort of factors that they should take into account in deciding whether to opt out and what sort of pension provision to make.
It cannot be said that it is always wrong for someone on a low income to take out a personal pension instead of being in SERPS. That would depend on the structure of costs. That is why we have done the next important thing, which I also mentioned, of making it clear to people what the costs are, by introducing transparency. Then people will be able to see whether it is worth their while and to compare and contrast.
It is the underlying duty of those who market personal pensions to give best advice. There is evidence that that. has not always been done. That has been jumped on hard—and quite right too. I have absolutely no interest in overlooking any mis-selling in the past. We must get it right, and put it right. The industry has a vested interest in getting it right, so that it can continue to provide a valuable service.
With respect, I have given way to everybody. So that the debate may continue, perhaps I may draw my remarks to a conclusion. The hon. Gentleman will have a chance to contribute to the debate again, as he has already through my willingness to give way.
Our pension promises have already brought the prospect of increased prosperity to millions of people. We have more employer schemes. We have more people taking responsibility for their own retirement income, and we have built a solid foundation of funded pension provision which is the envy of the rest of Europe. We have done that through increased choice and wider opportunity. Those will remain the characteristics of our policy in future.
The fine words of the Secretary of State seemed almost designed to conceal a scandal of our age—what occurred in pension transfers. It seemed that much more of a scandal because it involved some of the most reputable and well-known, household-name insurance companies. The one consolation is that a number of those companies are such well-established and well-funded institutions that there is at least the prospect that most of the people who suffered from mis-selling may be able to be compensated. Indeed, the regulatory authorities must insist that all those people be compensated. The size and the scale of the scandal and the involvement of so many reputable companies must be a concern. I expected it to be reflected in a larger proportion of the Secretary of State's speech than it was. Only in his closing lines did he recognise, in response to an intervention, that the Government cannot condone the mis-selling that went on; only then did there seem to be any acknowledgement of what happened.
The sale of personal pension plans was a huge exercise. It has been estimated that more than 6 million have been sold since January 1988. A third of them were sold through independent financial advisers and the rest through tied representatives—large companies and other large companies acting as their tied agents. It is significant that two thirds of the personal pensions were sold by big companies. Much attention has been given to independent financial advisers and there have been some bad apples in that barrel. There have been many concerns in relation to people being given extremely bad advice which was based on commission. However, two thirds of the problem was generated by companies who had no business to do anything of the kind. They had the resources and the experience to do the job properly and failed to do so.
Penalties have been imposed on Legal and General Group plc, and Norwich Union Insurance Group is suspending 800 sales staff. That was significant enough for the Eastern Daily Pressthat this morning it was the only newspaper in the entire country that did not lead on the trials and tribulations of the Prime Minister. It led on the suspension of 800 Norwich Union staff. It is quite a big issue in Norwich, which illustrates the seriousness of the matter for large and well-known insurance companies. Norwich Union will not be the only company to be affected. Many more will be affected and will have to pay out a lot of compensation.
However one considers the Coopers and Lybrand Deloitte figures and however cautious one is about them, they clearly suggest that a large number of people on very low earnings have been wrongly advised to contract out of SERPS. As I understand it, contracting out will not simply include people who are substituting a personal pension for a state earnings-related pension, but will include people who, by transferring out of a contracted-in pension scheme, are giving up a combination of an occupational pension and a state pension for a personal pension. A number of people will have done so with earnings insufficient to cover the charges levied by life insurance. [Interruption.]It is an unusual privilege to be presented with a note from the Government Benches while I am making a speech. I shall come to it due course.
It is believed that 500,000 people have transferred into personal pension schemes since 1988. The KPMG study reveals that only 9 per cent. of client files have been treated with "substantial compliance" by firms undertaking pension transfer. That leaves room for the possibility of great financial disadvantage being afflicted on clients who left more suitable occupational schemes. The KPMG report does not quantify the losses. It was not set up to do that. The report quantifies the lack of compliance. The lack of compliance was almost total; virtually no one was complying with what they were supposed to be doing. But 37 per cent. of the schemes were suspect or unsatisfactory and suspect, implying that the advice was misleading, perverse or seriously wrong. That is a serious problem.
Among the groups concerned were a number of especially vulnerable people—for example, redundant mineworkers. About 58,000 mineworkers were persuaded to move £736 million of pension fund money into personal pension schemes, followed by 23,000 steel workers, 27,000 teachers and 32,000 nurses. I know from experience in my constituency that redundant mineworkers were hired by insurance companies to provide the names of other mineworkers who could then be approached. Meetings were organised and great promises and offers were made.
The present situation is that I have mineworkers coming to me—some of them have been lucky enough to obtain fresh employment; they are the lucky minority—who are going into a local authority pension scheme. They discovered that if they had remained in the mineworkers pension scheme, they could have transferred rights and benefits into the local authority scheme which they cannot now transfer. They have been severely disadvantaged and must be compensated under the terms that SIB described, and to which the Secretary of State referred. I intend to make it my business to see that any mineworkers in my constituency who are so affected are compensated.
When we look back on this whole episode—what happened and why—we must look first at the role of the Government. At the time, the Government heavily advertised the desirability of transferring into personal pensions. They heavily encouraged opting out of SERPS by offering rebates and the 2 per cent. inducement. The Ministers involved are now respectively the chairman of the Conservative party, the Lord President of the Council and Leader of the House of Commons, and the Prime Minister, who was the Under-Secretary of State in the Department at the time. I ask whether one would buy a personal pension from any of those three. They certainly carry a heavy responsibility for what happened, because they were involved in creating the climate in which it was wrongly assumed by millions of people that it would be better to have a personal pension than to be in an occupational pension scheme or the state scheme. It may have been better in some cases, but in many cases it was not.
Before the Liberal party seeks to gain too much of the moral high ground on this issue, I remind the right hon. Gentleman that for the past two years his party has failed to nominate an officer to the all-party group on occupational pensions, despite repeated requests to do so, and he is the sole representative of his party in this important debate.
If I must appear before the Almighty on judgment day and say that I am sorry that I failed to submit a name for the all-party pensions group, and the three right hon. Members whom I mentioned must appear before the Almighty and say that their advice may have led many thousands—perhaps even millions—of people to finish up with much lower pensions than they should have had, I shall be in a more comfortable position than they are. To assist the hon. Member for Bournemouth, West (Mr. Butterfill) with that relatively minor matter, I shall certainly try to do so.
The right hon. Gentleman complained about the advice given by Ministers to opt out of SERPS. Is not it Liberal party policy to abolish SERPS, as its 1992 manifesto says? If that is right, how on earth will all the people in this country who want enhanced pension provision get it?
The advice must be against what is available and what the alternatives are. In the long term, it is not sensible for us to suggest to people that through SERPS we can give them a better deal than good occupational pension schemes, or, in some cases, personal schemes can provide. The question is what advice was given to people for whom that was not the right choice at the time. The wrong advice was given both by insurance salesmen and by the Government in the general background that they provided.
The second failure was that of LAUTRO and FIMBRA. They did not produce any detailed rules until 1992. To some extent, LAUTRO appeared to have been captured by the trade that it was supposed to be regulating and simply did not discharge the job that it was given to do. In mitigation, one can say that those bodies had only just been set up and that it was difficult for LAUTRO and FIMBRA effectively to operate against the background that I described. The fact remains that it was a failure—and the biggest failure was that of LAUTRO. The biggest failure involved the biggest institutions.
Part of the background was the growth of tying. A large number of other financial institutions—banks and building societies—became the sellers of only one company's products. That immediately put the consumer in a very dangerous position. If a consumer goes into a shop to buy a washing machine, even if the salesman is on commission for what he sells, at least he is selling one of a series of washing machines and will give some advice about it. It may not be an ideal position, but it is better than consumers finding their friendly building societies saying, "Of course you can have a mortgage; we can arrange it. By the way, your insurance will be with this company or that company. We have combed the market and in every respect that company provides the best products". That provided an unsatisfactory background for many financial decisions—personal pensions in some cases, endowment insurance in many cases and a whole number of other decisions.
There was a lack of training for staff in those organisations for the job that they were doing. A large number of people went into banks, building societies and even insurance companies expecting to do one sort of job. They then found that they were under heavy pressure to make sales in a sophisticated area in which someone was not buying a small policy or an addition to his savings portfolio but was committing the whole of his pensionability—the whole of his future. That placed a heavy burden on people who were not trained to carry out that responsibility.
Then there was the commission system with all the pressure that it provided in the absence of any real public understanding of how great the commissions and, indeed, the charges were. When I say the commission system, I am referring not only to the commissions paid to independent financial advisers but to the commission-only sales forces of some insurance companies and the employment terms of those involved in other institutions, whose jobs or promotions were on the line if they did not sell more pension or insurance products.
The insurance industry recognises the scale of the failure and what it must do Ito provide compensation. Most insurance companies are engaged in working on that task now; it is going ahead. I hope that it will not be delayed too much because I am worried about the number of people who may not yet realise that they should make a claim for compensation in that way, and the need to ensure that those claims are quickly and adequately processed.
What about the future, now that all that has happened? The new SIB rules are welcome. Those rules require, for example, transfer value analysis and a better basis for making judgments about this sort of thing. There are rules for cooling-off periods and rules placing restrictions on independent financial advisers as to whether they are capable of and equipped to carry out business of that sort. However, the rules do not go to the heart of some of the problems. They do not deal with the commission system or the dependence of staff in tied banks and building societies on the sales that they make to keep their job or level of income. The rules do not deal adequately with securing disclosure across the board.
There remains a great gap in all this. There is still no adequate provision of fee-based advice, so that someone can go to a genuinely independent adviser and say, "I want to know what is the best bargain for me. I will pay you by the hour for the advice that you give me". There are places in the market where such advice can be obtained, but people do not generally realise that it is obtainable. People do not always realise that they need to have such advice or that it is not what they are getting. The only way in which the commission system will cease to have the bad influence that it has is if more fee-based advice is available and people can see that it is genuinely to their advantage to pay a relatively small sum of money up front to get decent advice.
Does the right hon. Gentleman accept that, as long as we have a situation where it seems that those who pay commission to an independent adviser are paying a sum of money and those who buy from a direct seller are not suffering from the same disadvantage, fee-based advice will not become popular? We all know that those who buy direct are paying for in-house salesmen, expensive advertising and everything else—and they are paying in exactly the same way—but that is not immediately apparent to the consumer.
The hon. Gentleman makes more fully the point that I compressed too much. When I talk about disclosure across the board, I mean that people should be able to make a proper comparison of what they are paying through an independent financial adviser and what they pay if they go to a bank or building society and do business through the staff of those organisations, what they pay if they deal with an in-house insurance company of one of those organisations, and what they pay if they deal with one of the companies that do all their business through direct sales. There are charges, commissions and remuneration packages in every case. These can and do influence the sort of advice that is given, and this is something that the customer needs to know.
Then there is the issue of the Personal Investment Authority, which is getting off to a pretty shaky start. I identify two particular problems that are crucial to the future. One is the weakness in the consumer or independent director system. The criticism here is the opposite of that made by Standard Life and by the Prudential. My contention is that consumers or independent directors are not in a very strong position. They owe their appointment to the chairman and other directors, and their approval to a body created by those people. Several of them are directors of building societies anyway and are therefore already enmeshed in the system—some of the disadvantages of which I have sought to describe. That being the case, they are not in a strongly independent position. When it comes to challenging the accepted wisdom, the fact that, in effect, they are being paid £1,000 a meeting—£12,000 a year—to serve on this body might just deter somebody from upsetting those on whom he depends for reappointment. Perhaps that is an unjustified fear, but it is one which some people will hold and it casts doubt on the effectiveness of the independent side.
However, some of the companies involved adopt the attitude that there are now too many of these independent people about and that, as it is not really self-regulation, they will not have it. That was initially the view of Standard Life, although I believe that that company has now accepted that it should be regulated, and that remains the view of the Prudential. In my view, it is indefensible that the Prudential should be allowed to shop around as to who regulates it. Technically it is regulatory arbitrage, but I regard it as an unacceptable notion. I hope that the Securities and Investments Board will say that its agents regulating the Prudential will be the Personal Investment Authority, or, at least, that the Prudential will be regulated according to precisely the rules that govern those regulated by the Personal Investment Authority. I hope that the Prudential will not be able to earn one jot of regulatory lightness by deciding to go elsewhere for its regulation.
The hon. Gentleman will be interested to know that several Conservative Members agree entirely with the remarks that he has just made. It is up to us to ensure that the public realise that a body that tries to choose a regulatory authority to suit itself is not one with which they can deal confidently.
My remarks carry that implication.
Then we come to the crunch question that is implicit in the Labour party's motion: is there a statutory or direct system that would have saved us all this trouble and would be a great deal better? We must face the fact that there has to be practitioner involvement somewhere along the line. Otherwise, people simply will not be wise to what the trade was getting up to. There must be practitioner involvement to make the system work effectively. Could that be achieved satisfactorily with a Government-appointed regulator and some sort of practitioner committee structure? Perhaps it could, and perhaps that is the direction that we should have taken. What there is no scope for is a completely detached system of regulation which purports to have a strength that the present system does not have. We can improve the present system by making it more independent and accountable—accountable to Select Committees of the House of Commons, for example—so that it has some focus of accountability. But there is no easy, clear distinction between, on the one hand, what is known as self-regulation and, on the other hand, statutory regulation. Self-regulation is statutory in that there is a wide range of Government involvement. It has directors who are not part of the industry. Statutory regulation means some kind of practitioner involvement. Any system is a compromise between those elements.
Moreover, I do not believe that if we had had something that might be called statutory or direct regulation we should have prevented all that has happened in this episode. There are several reasons. The first is the atmosphere and background that I have described. Indeed, it is rather difficult for Opposition Members to imagine that the Government would have made a better job of restraining personal pension growth when their policy was to promote just that. It is rather far-fetched to think that, in this regard, they would have done better than LAUTRO.
I intend to vote for the motion as it rightly focuses on a serious problem and on the need to strengthen regulation. However, I counsel against assuming that the word "direct", which appears in the motion, or the alternative that is sometimes used—"statutory"—implies a simple alternative system that would have delivered the goods, and will do so now. There are still marked weaknesses in the system that we have. We need huge improvements in respect of disclosure, the way in which the commission system works, the provision of fee-based advice and the independence and accountability of the regulators. But we must start from where we are and learn from experience.
Tomorrow's financial regulation problem will not be personal pensions; it will be some other product. I am afraid that, inevitably, this debate is about the stable door and the horse that has bolted. We need to make the system effective to guard against sophisticated new financial products that would pose new threats to ordinary people who do not understand the complexities. That is all the more reason for working from here to build a better regulatory system than we have managed to achieve so far.
I should like to preface my remarks by reminding hon. Members of the entry in the Register of Members' Interests that shows that I am an adviser to the British Insurance and Investment Brokers' Association, which, together now with the National Federation of Independent Financial Advisers, represents about half the financial advisers in the country. I have taken a consistent interest in this matter—starting with the Committee stage of the Financial Services Act 1986, to which reference has been made, and continuing in my capacity as chairman of the all-party group on occupational pensions.
It might be helpful if I were to sketch in a little of what I see as the background to the problem. The hon. Member for Glasgow, Garscadden (Mr. Dewar) has done the House a service by bringing this matter forward for debate. There remain a number of very serious issues that the House must confront, and the opportunity to have a long and comprehensive debate of this nature is very welcome. However, we must look back to find out why this situation has arisen.
First, why were occupational pensions derided by so many people? I believe that the answer to that question was provided by my right hon. Friend the Secretary of State when he referred to the restrictions imposed by so many schemes. Many hon. Members may, even today, be victims of those restrictions. I have a pension scheme in which I participated when I was in my 20s. That will pay less than £100 on maturity, when I am 65, as it was frozen when I left it in my late 20s. So many people were in a similar position that there was deep suspicion—now, fortunately, removed by Government action. Then, it was necessary to rely on the discretion of trustees.
Personal pensions have a very important application for certain types of individual. Those who are relatively high earners and those who are likely to change their jobs often may well find that personal pensions suit them a good deal better than occupational schemes. For those people, personal pensions were, and probably remain, entirely appropriate. When all this was going on, there was immense public approval for the Government's proposals. [HON. MEMBERS: "Oh!"] Opposition Members who say "Oh!" should look at the newspapers of the period—and not just those supporting the Conservative party, but all sorts of newspapers. They were saying how wonderful these proposals were. Television programmes said much the same thing.
Does the hon. Gentleman accept that most of the clamour of approval came from the self-interested advertising and promotion efforts of the industry itself, which wanted to benefit from massive commissions?
Of course the industry was advertising, but I do not by any means accept what the hon. Gentleman says. He ought to do himself the favour of looking back at the newspapers of the period, where he would see article after article advising people what a wonderful thing this was.
The proposals coincided with the banks' and the building societies' surge into the market. These institutions decided that this was a lucrative business in which to become involved, and they therefore used all the marketing pressure of which they were capable. That had not previously happened, and pensions had been largely the domain of the traditional insurance companies. That marketing pressure is what led to an expansion of those schemes beyond all expectations. It was expected when they were first introduced that there would be about 5000,000 sales initially. The actual figure was 3.5 million. As my right hon. Friend stated, the current figure is more than 5 million. The success of the schemes exceeded everybody's expectations, and that put a lot of pressure on the industry.
Although most of the problems have arisen out of opt-outs or transfers, it is true that we have as a result a huge additional capacity which would not otherwise have existed. Many more people have been persuaded to save for their retirement in a way which overall can only be a good thing.
What are the problems that have arisen? The first is the inadequacy of the regulation. It is quite clear that there was a total inadequacy within the regulatory structure, and I lay much of the blame for that not just on the self-regulatory bodies but on the Securities and Investments Board. There has been a total failure to address the problem of disclosure.
The right hon. Member for Berwick-upon-Tweed (Mr. Beith) graciously allowed me to intervene on that subject. Disclosure is not merely the commission being paid to the salesman but the total disclosure of all the costs associated with the product, what the effect will be if there is an early surrender and what other restrictions may be placed on the investor.
All those factors are needed for a person to make a balanced decision. The investor does not need to know how much commission the salesman is getting, but how many pence in his pound will end up being invested on his behalf. Regrettably, there is still a failure in the regulatory arrangements for that to become sufficiently clear. A lot of progress has been made, but more progress still must be made.
I made those points in 1986 on Committee. I remember that the Prudential told us that it was quite impossible to calculate what we were suggesting, although actuaries disagreed at the time. The actuaries have been proved right and the Prudential, once again, has been proved wrong. I believe that it is wrong today in its approach to the problem.
The other problem was that there was poor training of sales staff. That was manifestly because the huge increase in the volume of business forced companies to take on people who had probably never sold insurance or pension products in their lives and who knew very little about it. Undoubtedly inadequate training still exists, as Norwich Union has evidenced.
My hon. Friend surely will recall that another all-party group, of which I am chairman, went to LAUTRO for the first time more than three years ago and the problem of the lack of training of appointed representatives was identified. Does my hon. Friend agree that Norwich Union's decision and announcement yesterday shows how much we are getting to grips with it?
I agree entirely with my hon. Friend. He and I have taken a long and consistent interest in the issues. It is long overdue that the major companies—particularly those with direct sales forces—ensured that they were adequately trained.
It is a reflection of the inadequacy of the training that the KPMG report—I have here also an analysis of the report from the Association of Consulting Actuaries—shows, interestingly, that pension schemes sold by independent financial advisers—IFAs—tended to be much better advised than those directly sold by the insurance companies. One might expect that that should be the case for all sorts of reasons. An independent adviser would be more likely—indeed, would be required—to look around the market at a variety of products before coming down in favour of one on behalf of the client, whereas those who are tied can offer only the product of their own company.
That factor is also probably due to the fact that many of those recruited had very little experience of the nature of occupational pension schemes. At least the IFAs knew something about them. The new recruits may have been car salesmen yesterday—
I am grateful to both hon. Gentlemen.
Does the hon. Member for Bournemouth, West (Mr. Butterfill) agree that it rather suits the industry to harp on about training? I do not wish to minimise the importance of training, but it seems that the industry would far rather talk about that than about the structural problems of a commission-driven system that drives people to make sales that they ought not to make.
The hon. Lady anticipates remarks which I was going to come to later. I will address them now.
The hon. Lady may know that I have made a number of speeches and have written articles in national newspapers about the commission problem. It is entirely inappropriate that people should be commission-only salesman, and should then be expected to give impartial advice. I do not believe that it is possible that somebody who relies on making the next sale to feed his family can be as impartial as he should be in giving advice. I entirely agree with the hon. Lady.
Will the hon. Gentleman confirm that it has been a deliberate policy of insurance companies to have semi-trained staff, and that the average time that people stayed in those jobs is about eight months? Is it not in the companies' interests to do that because the poorly trained staff sold policies in a less conscientious way and did not understand what was going on? Were not they also employed to sell policies to workmates, ex-workmates and families? When they had done that, they were of no use to the insurance company. Has not that been a deliberate policy for many years?
I accept that there may have been an element of that, but I do not think that that would have been a deliberate or conscious policy for most companies.
All the requirements of the regulatory organisations which are now in place lay great emphasis on training. I am sure that the hon. Gentleman and the hon. Lady will agree that unless we have properly trained sales staff it will be impossible for people to feel confident about the advice they have been given. Training is of paramount importance for the future, and it should have been in the past.
Not only was there a lack of experience of the nature of occupational schemes, but many of the trustees and those who were running occupational schemes were not altogether unhappy about losing some of their beneficiaries. Some were good and advised people to think two, three or four times about transferring or opting out. However, others did not because they saw that a burden on their company would be lifted.
It is also true that many of the trustees advised the actuaries who were acting for them in calculating transfer values to disregard all the discretionary benefits that would accrue to their member. As a result, many of the transfer payments were much less than satisfactory because the person selling the new scheme did not know enough about it. The people involved were therefore unable to get adequate advice on that subject.
Yet another problem was that those who were given that advice did not always take it. It has not always been mis-selling. One can quote a large number of examples of people who were advised not to do it, but nevertheless said that they wanted the independence from their occupational scheme. They did not trust the company or the occupational scheme, or they may have thought that the company might not have a secure future.
One of the disadvantages of occupational schemes, as against personal pensions, is that they rely on the continuing existence of the company that is operating the scheme. If the company goes into liquidation—as some of my constituents who were members of the Pynford scheme have found to their cost—the pension goes out of the window. That scheme has been frozen for about three years, and that is another disgrace, which I may bring to the attention of the House on another occasion. There have been many more problems than were immediately apparent.The hon. Member for Garscadden—
At this point in his excellent speech, my hon. Friend has raised the fact that there are some problems with occupational schemes. In the context of the debate, we must focus on that aspect, too. Occupational schemes are a problem not only in the circumstances that he mentioned, but when an employee has to leave the scheme because of a change of job. There are difficulties if occupational schemes exist and there is no availability of personal pensions. We have to get the balance right in the debate.
My hon. Friend makes a valid point.
One of the criticisms that I would make of the otherwise excellent speech made by the hon. Member for Garscadden is that he over-egged the pudding in describing the extent of the problem. There is a danger that in doing so we will discourage people from making personal provision. There is no doubt that we should encourage people to do that, but at the same time we should ensure that there is a framework in which they can do so securely.
The hon. Gentleman referred to the framework in which people take decisions. May I ask him a question about the regulatory framework? Is the hon. Gentleman satisfied that Joe Palmer, with his record at Legal and General, is fit to lead the Personal Investment Authority? The three early-day motions that I have tabled on the matter are fairly delicately put together. Would it not be good if some Conservatives Members signed the motions to show the industry that people in the House are prepared to say what the industry regularly tells us is the case? The industry has no confidence in that man because of his track record at Legal and General.
I regret that I do not join the hon. Gentleman in that view. Mr. Palmer has considerable experience of the industry and is widely respected in the industry. The measures that he has taken in setting up the PIA, which was not an easy task and which I shall speak about later in the debate, have been admirable. The PIA is not perfect by any means, but Mr. Palmer is doing a good job and I wish him every success.
Before I gave way, I was referring to the extent of the problem. In the analysis that the Association of Consulting Actuaries made of the KPMG report, there are two time scales. One is the time when sales took place before additional guidance was given by the regulatory organisations. The other is after additional guidance was given. Most of the errors that were identified by the KPMG report amounted to inadequate record keeping. It is true that systems were not in place to ensure that those who sold the products kept adequate records. The lack of adequate record keeping does not of itself necessarily denote that there has been mis-selling for which people would need to be compensated.
The report also says that in other cases, although the record keeping was all right, there was some suspicion that the advice that was given was not entirely impartial and not as good as it should have been. In other cases, there was a combination of that suspicion and inadequate record keeping. Those were the worst cases. If one takes the total of good selling, before guidance, coupled with mere inadequate record keeping, 61 per cent. of all the pensions sold were dealt with satisfactorily.
The hon. Gentleman is trying to put a wholly unjustified gloss on that report. The report said:
Of 735 client files revealed, only 9 per cent. of the files showed evidence of substantial compliance with the main conduct of business rules.
To assist the hon. Gentleman, I am stating that those who have some expertise in the matter—the Association of Consulting Actuaries is independent and expert, as I hope the hon. Gentleman concedes—have analysed that raw statistic to show what that failure to comply comprises. In many cases, it is simply a failure to fill in a form or keep an adequate record on a file; it is not evidence of mis-selling. I urge the hon. Gentleman to study the reports again in detail and to study the parliamentary brief prepared for Members of Parliament by the Association of Consulting Actuaries. The brief goes into far more detail and he will find it informative and instructive. One of the dangers in the debate is that people speak from too little knowledge of the reality of the position. It would be helpful if some hon. Members were better informed.
On the basis that I have just described, 61 per cent. of pensions were adequately sold, but in some cases poor records were kept. In only 7 per cent. of cases in which the records were all right was the advice suspect. I do not defend the figures. They are appalling, but they are not the 90 per cent. failure to comply that some people have suggested. All that I am saying is that there is a danger that we over-egg this particular pudding and frighten a large number people, who may have received perfectly satisfactory service from the industry, into believing that all of them, or almost all of them, have been sold an inappropriate product.
The last thing that I would want to do is scaremonger. The pie chart that records sales after the regulators issued guidance, shows that 47 per cent. were both unsatisfactory and suspect and 11 per cent. were suspect. Even if we take that improved performance, 58 per cent. of the total of sales were either unsatisfactory and suspect, or suspect. That is a very unsatisfactory situation. It does not justify scaremongering, but it certainly justifies a great deal more concern than the Secretary of State showed this afternoon.
With great respect to the hon. Gentleman, I think that he is misreading the pie chart. If he looks at it, he will find that after regulation 20 per cent. of sales were passed. The 47 per cent. which he said were unsatisfactory were so because of inadequate record keeping.
No. Only 22 per cent. were unsatisfactory and suspect. It is the darker grey on the pie chart. I agree that the chart is not terribly clear. If the hon. Gentleman looks at the satisfactory sales and those in which there was merely inadequate record keeping, he will see that, following guidance, the number of non-mis-sold or non-suspected mis-sold products rises to 67 per cent.
Does my hon. Friend agree that at this stage there is simply no evidence on whether clients have been financially disadvantaged, so one cannot draw conclusions as to what the losses are?
That is right. Perhaps we should pass from here to a different aspect of the matter. I merely sought to make the point in response to the hon. Member for Garscadden that the scale of the problem was nothing like as big as some commentators on the subject have led us believe. It would be dangerous for us to leave the House having given people the impression that almost everyone who was sold a personal pension had been necessarily disadvantaged. The reverse is the case. It is estimated by the Association of British Insurers that probably only about 10 per cent. of all of them will require some form of compensation and that probably only 3 per cent. will require substantial compensation. That is still a significant and disturbing statistic, but it is nothing like so bad as may have been suggested.
I am reluctant to interrupt the hon. Gentleman's flow, but I am bound to do so because he is referring to an analysis of the KPMG report. I have a copy of the report. The hon. Gentleman has referred throughout to failures in record keeping. The report says, for example, that in 85 per cent. of cases there was no evidence of appraisal of pension alternatives. In 76 per cent. of cases, there was no evidence that the salesman had found out whether the client wanted to retire early. To talk about record keeping in a bland way suggests that the failures were merely technical minutiae. We are talking about the absence of elementary information used to decide whether the recommendation was in the person's best interests. The hon. Gentleman should read the report; it might help him.
The hon. Lady will be pleased to know that I have read the report. She is misinterpreting what it says. When the report says that there was no evidence of those questions being asked, it means that on inspection of the file it was found that no record had been kept that those questions were asked. It does not mean that the questions were not asked; it merely means that the salesmen concerned were sloppy in their approach and did not write the information down. It does not imply that the questions were not asked; nor that the comparisons were not made.
As I have been trying to explain to the hon. Lady, it is a purely clerical analysis and where further analysis of those problems has been done it has found that the problem is nothing like as serious as the raw statistics suggest. I should like to make some progress now as many hon. Members wish to speak in the debate.
It is significant that the figures.show that the regulator that comes out best is the Financial Intermediaries, Managers and Brokers Regulatory Organisation rather than the Life Assurance and Unit Trust Regulatory Organisation. That supports my suggestion that those people who sought independent advice did rather better than those who bought directly from the insurance companies.
The other concern I have about the KPMG report is that the Securities and Investments Board told us that it undertook the investigation because it looked at the records of the companies that it regulates through the Securities and Investments Board regulatory organisation—predominantly banks and building societies—found that there were serious problems and therefore instructed KPMG to look at everyone else.
However, the SIB did not give us the benefit of an analysis by KPMG of the firms that the SIB was regulating. It would be very interesting to have a comparison, because we may find that the situation in those companies that the SIB was regulating directly was even worse than that in the companies being regulated by the self-regulatory organisations. That has caused considerable suspicion in the industry as a whole.
What went wrong? I believe that the SIB totally failed to regulate the retail sector properly and I think that it goes back to the beginning of the process. Those of us who were present for the Committee stage of the Financial Services Act envisaged that the retail sector would be regulated properly. I was appalled when the SIB permitted the establishment of two regulators—FIMBRA and LAUTRO, one to regulate the independent sector and the other to regulate those products that were sold directly or through tied agents.
It always seemed to me that that would be a recipe for disaster, but powerful influences within the industry were pushing the SIB in that direction. That factor, coupled with the regulatory arbitrage which the SIB has permitted by allowing certain people to be regulated by the SIB itself, has caused much of the current problem.
There has not been consistency of regulation. From the beginning, the SIB should have insisted on a single retail regulator. There are those who ask, "Did the SIB have the power to do that?" I believe that it would have had the power if it had insisted on it ab initio. If it now needs further powers, I hope that my hon. Friend the Economic Secretary—my views on this subject are very well known to him—will take the necessary steps to give the SIB the power to direct people to that self-regulatory body by whom they must be regulated. We should also get rid of the four different regulators—there will, I hope, shortly be only two, but that is still too many. I wish the Personal Investment Authority well, despite my reservations about it.
I believe that the SIB brief to KPMG was inadequate, for reasons that I have outlined already; I think that it should have looked at its own regulation as well. Its response was, frankly, a little hysterical and it has raised unjustified fears among the population. That has had an unfortunate side effect: because of the scare created, many independent financial advisers cannot get the professional indemnity cover that they need in order to trade.
I think that the insurance industry as a whole must come forward with cover for IFAs as an industry initiative; otherwise, the IFA sector will disappear altogether. It is high time that the industry accepted overall responsibility for regulation. I have long taken the view that the insurance industry should be responsible for regulating itself properly and that it should not indulge in the factional in-fighting in which it has engaged in the past. When that happens, we will see a satisfactory resolution of the problems. If that means statutory intervention by this or any future Government, I will be the first to support it.
How can we remedy the problems of mis-selling? I believe that there are adequate remedies and I pay tribute to the industry in that it is now taking the steps necessary to solve the problems. People can be reinstated to their former occupational schemes where those schemes are willing to take them back. Of course, not all schemes are willing to do that, as the National Association of Pension Funds has pointed out. Some schemes told people that they should not leave and warned them that if they did the schemes would not have them back. It will be very difficult for those schemes to say, "All right, we accept that you did not take our advice, but we will have you back after all."
However, some schemes will take people back and people will have to return with a sum of money sufficient to compensate them for what they have lost, which must be paid by the company that sold them an inappropriate product. That much seems clear. Alternatively, people who wish to return to a scheme could enter a new scheme set up by their original company. If people cannot return to a scheme, additional payments will have to be made into their personal schemes so that they are in no worse a position than they would have been otherwise.
There is an urgent need to look at the whole structure of the industry. I agree with many of the things suggested by Professor Goode. It is essential that we establish an independent pensions regulatory body, and I hope that my hon. Friend will bring forward legislation to achieve that at the earliest opportunity.
However, I am disappointed by some parts of Professor Goode's report. For example, I am very disappointed that it does not recommend the training of trustees, as many pension funds face the problem of inadequately trained trustees. There should be provision for training and, in the future, all pension trustees must be required to go through a process of not just vetting, which is obviously necessary, but training in the duties that they are required to perform.
I think that we should immediately end regulatory arbitrage. We should have a statutory PIA if necessary. The industry must take responsibility for all its products, however they are sold.
There should be much stricter controls on tying-in. I believe that there is still a serious danger in that sector. People are at their most vulnerable when they go to financial institutions to borrow money—usually in connection with house purchase, but also for other purposes. At that time, the financial institutions may say, "It is a condition of your loan that you have some insurance cover or a pension product that will pay out at the end of the day."
There is huge implied pressure on the borrower to buy a product through the provider of the money. The potential for abuse in that area is enormous. Hon. Members will recall the concerns that I expressed on this subject in earlier debates. I honestly believe that it may be necessary to consider making that form of covert tying-in an offence under the regulatory code as it develops.
However, I do not think that we should throw out the baby with the bath water so far as occupational schemes are concerned. There have been many comments to the effect that occupational schemes should preserve their money for the benefit of beneficiaries and when there is a surplus in a scheme the company concerned should not be able to take a contributions holiday. I understand what motivates people to say that, but I believe that it is a dangerous concept.
In a personal scheme, the risk on inflation and investment return is taken by the pension holder. In an occupational scheme, the risk on both of those factors is taken by the company. If the company is required to make up any deficiency, it ought to be permitted—if the markets go well—to have a rest from making contributions at times when there is a surplus. If we do not permit companies to do that, I believe that most companies will abandon occupational pension schemes altogether and offer only money purchase schemes. That would be to the detriment of the entire industry and the general public.
In summary, although the Opposition have done us a favour by giving us the opportunity to have the debate, they cannot take the high ground because they have consistently frustrated and opposed measures to increase personal pension provisions.
The hon. Member for Oldham, West (Mr. Meacher), in a press release in June 1990, threatened to turn private pension provision on its head. We cannot therefore take any comfort in what the Opposition might have done had they been in power and we can congratulate the Government on having encouraged ever-greater provision—80 per cent. of people now can rely on more than their state pension. In the United Kingdom, the total amount invested in private pension provision is more than that in the rest of the European Community put together. The Government have much to congratulate themselves on, but there is still more work to be done in the regulation of the industry.
It is somewhat surprising to hear the hon. Member for Bournemouth, West (Mr. Butterfill) attacking the Opposition for their reservations about personal pension schemes when the personal pension system and the Government's fanatical enthusiasm for it have caused the major problem that we are debating.
The problem is a major scandal and the Opposition were right to offer notes of reservation and to tell the Government, "Hang on, think about it. This could be dangerous." They warned that the benefits would be less than those from the state earnings-related pension scheme, occupational pension schemes or other methods of provision. We were right to make those warning noises and surely cannot be criticised for them.
The hon. Member for Bournemouth, West should have criticised the Government, because they perpetrated the problem, in collusion with the industry, which was greedy for commissions—commissions which were never effectively regulated and disclosed. The hon. Gentleman served on the Standing Committee that considered the Financial Services Bill in 1986, as did my hon. Friend the Member for Workington (Mr. Campbell-Savours). We heard frequent assurances that the new system would be regulated and publicised and that it would be clear to the consumer whom he was paying for what. It never turned out that way and it is only now, all those years after passing that legislation, that we are getting decisions on commissions.
The system has never been properly regulated. The industry was greedy for commissions and was in collusion with a Government who were fanatical about privatisation. People were pushed out of a good scheme into something substantially inferior. That is the scandal and that is what we are talking about. Massive advertising campaigns by the industry conned those people into contracting out. Through massive Government advertising, people were told to grab the money that they were giving. The Government spent £1.2 million on advertisements to encourage people to get out of the state scheme, in collusion with the industry, which would benefit from the incoming commissions.
We have heard many quibbles from Conservative Members—especially from the Minister—about the number of people involved. Let us stick with the Coopers and Lybrand estimate of 2.4 million, which is equivalent to 40 per cent. of the people who opted out. That percentage—the chief victims—includes all those on low earnings of under £10,000 a year. The contributions that they can pay on such earnings make their scheme too inadequate to out-perform SERPS. In addition, they are paying a substantial commission to belong to the inadequate scheme. Those are the people who have been robbed—the less well off and the very people whom we should have been doing most to protect; but they have suffered most from that scam.
I am aware that other reports put the figure at 3.2 million, which is equivalent to 60 per cent. of those who opted out and in Yorkshire and Humberside it is higher still, at 66 per cent., or a total of 315,000 people, most of whom are on low pay and have suffered because of the scam.
The Minister said that we should not count people who had lost their jobs since they took out their personal pension. Of course we should. The burden of commission, most of which was front-loaded, falls on them especially heavily because the contributions that they made while in work are mainly drained away by it. They must be counted among the people who have suffered and they are included in the 3.2 million figure
The heavy burden of charges and commission are the real problem. It is estimated that they amount to about one quarter of total contributions during a lifetime. The scheme must be not merely brilliant but supercalifragilistic if it is to increase performance to the extent necessary to cover the huge drain imposed by commissions.
The industry is so greedy for commissions, but they make private pensions cover so inadequate. That is why the Coopers and Lybrand report states that contracting out is of "significant benefit" only to highly paid people in their 20s and 30s, who are prepared to take an investment risk. Those are the only people who should have been encouraged to contract out. The regulators should have compelled the campaign to concentrate on them and the Government should have concentrated their efforts on that group, although they are often sophisticated enough to know what they are doing. The campaign should not have concentrated on the mass of low-paid people who were taken out of the state scheme.
Let us estimate the enormous cost of the scandal—about £11.5 billion to bribe people to opt out, including an allowance for the savings to the SERPS scheme. The Government spent £11.5 billion to encourage people to opt out of SERPS. There was also a cost to policy holders—principally the commissions, charges and mis-selling that took place—amounting to £3.5 billion, as well as the cost of compensation for the people who suffered because of opting out. The last figure depends on how adequate compensation is and I have seen no proposals that satisfy me that people will receive adequate and reasonable compensation for the loss that they suffered. I saw one estimate of £1 billion, which has been put aside by pension companies to cover the liabilities that they will incur because of the scam.
Let us be conservative in our estimates and say that it is not £1 billion but £2 billion. If we add all those costs together, they make a total of £18 billion to make the pensions of a significant section of our population worse. That is a tragedy and it is doubled by the fact that the Government were a conspirator, in collusion with the industry to achieve that end.
The tragedy is compounded by the fact that, to crown the labours of the toiling hosts of Crossmans, Castles and all those who tried to develop an adequate pension system for this country—those efforts were mainly made by the Labour party and Labour Ministers, who, through great difficulties, attempted to develop comprehensive and effective pensions coverage—it was time to give the country a proper, effective and fully comprehensive scheme. Instead, the Government opted for the gimmick of privatising and opting out, in collusion with the industry, and thus wasted all that time and money and conned a significant proportion of our people.
The Government have failed in their task of developing a proper scheme and providing effective pensions for the great mass of our people. They have coupled that failure with breaking the tie between earnings and pensions that a Labour Government introduced in the 1970s and sustained throughout their period in power. The basic state pension is, therefore, much meaner than it should be.
We assume that society will be richer in 30 or 40 years' time—not much richer if this Government stay in power, given their present economic performance and such a fragile and feeble economic recovery—but most people will have pensions that are much worse than the average earnings of people around them. In other words, the standard of living of the elderly will not keep pace with that of society. Most people will be affected by that.
In addition, 9 million people will fall down the holes between the various schemes. That is the estimate in the Institute for Public Policy Research document—an excellent document, which I recommend to all hon. Members—by Bryn Davies, who is the director actuary of Union Pension Services, and an acknowledged expert in the field. He says that three groups cannot now look forward to a reasonable level of income in retirement.
First, there are those people who do not belong to an occupational pension scheme for sufficiently long periods in their working lives and who, for one reason or another, have not taken out personal pensions. Secondly, there are those people who belong to an occupational scheme but change their job so often that the rights that they accrue are much lower than those that would be built up by a long-serving member of the scheme. Thirdly, there are those people who have taken out a personal pension, but cannot afford to pay the level of contributions needed to provide worthwhile benefits. Those are the major sections.
Therefore, 9 million working people need to make additional provision for their retirement, but cannot do so in any of the existing forms of provision. Those existing forms offer no practical way for those 9 million people to make provision for their pensions. Therefore, they will be in difficulties when they retire.
The fact that the Government, who should have been developing proposals to cover those people and sustain them in old age, have wasted their time pursuing that frivolous gimmick, which has been so damaging to less well—off people especially, is a sign of how irresponsible the Government have been about pensions. They are happy to provide for the better off; they are happy that people on substantial earnings can provide for themselves, but they are not prepared to do anything to safeguard the standards of those people who fall between the different schemes and cannot now be covered by any of them.
The tragedy that we are debating is yet another indication that self-regulation has failed, and it has failed especially in that sector. The state, which should have been keeping a close eye on and protecting the interests of pensioners, colluded with the industry to push them out of a good scheme into a less adequate scheme, to damage their pension entitlement.
It is a regulatory failure because the Financial Intermediaries, Managers and Brokers Regulatory Orgnisation is criticised harshly by, for instance, the Consumers Association. The hon. Member for Bournemouth, West did not want to quote the Consumers Association, but it is pretty damning in its criticisms of FIMBRA, which has acted much more as a self-protection society than as a guarantor or defender of the wider public interest, and especially the interests of those people who were conned.
The Life Assurance and Unit Trust Regulatory Organisation has been, as the Consumers Association said, fairly supine in the matter. The Securities and Investments Board has done better, but the Consumers Association makes a number of important points, which I should mention. Even though the SIB has done better than the regulators beneath it, it has made no provision for addressing what went wrong, and no provision for calling to account those who are responsible.
I am interested to know how the hon. Gentleman can tell us that the SIB has done better because, as far as I am aware, as I said earlier, the SIB did not authorise KPMG to examine its own internally regulated companies. Indeed, there are many grounds to suppose that the companies that were regulated by the Securities and Investments Board have performed worse than most of the others in the market.
The steering group that the SIB has set up to run the review is dealing solely with the compensation arrangements—I am quoting the Consumers Association's criticism of the SIB and its view that although the two subordinate regulatory bodies have been supine, passive and inadequate, the SIB has done only slightly better. One of the reasons that the Consumers Association gives for that is not the reason that the hon. Gentleman gave, but the fact that the SIB is not calling any of those responsible to account.
As the hon. Member for Bournemouth, West said, the big institutions involved must have known what was going on. They do not simply sit in some Olympian cloud, while the harried sales force is off conning people throughout the country. They either instruct the sales force or they note what is going on. The fact that those people have not been—and will not be, apparently—called to account is one of the most monstrous things about the business. Those are huge, powerful institutions, in which the public need to have confidence, yet they have allowed—perhaps encouraged—sales people to go on a rampage round the country, conning 2.4 million people.
The Consumers Association adds that consumer representatives have been excluded from the steering group and the advisory committee, and it adds that the very regulators who failed to protect the consumers in the first place, and to prevent the breaches of good selling practice and best advice, are now themselves investigating the potential misconduct that has resulted.
There has been a serious regulatory failure. The Government connived in it for ideological reasons when they should have been protecting the public, but in that situation the regulators should have stood firm and controlled the situation. They did not; they failed. It is another nail in the coffin of self-regulation.
I believe that self-regulation cannot work. I have done so for some time—since we went in for the self-regulatory frenzy of the 1980s, which started with the Lloyd's Act 1982. Self-regulation has obviously been a conspicuous success in Lloyd's. That frenzy continued through the Financial Services Act 1986, which was opposed by the Opposition, who demanded an independent statutory regulator. It continued in banking and the building societies. It continued in the Companies Act 1989, when we set up effective self-regulation for the accountancy profession with the recognised supervisory bodies. A fetish has been made of self-regulation, which the Government seem determined to extend to the whole country. I do not know whether they want a self-regulating country, but they certainly want a self-regulating financial sector.
Self-regulation has not worked; it has failed and it is time to dismantle it. Self-regulation cannot work. The mafia cannot regulate the mafia. It is impossible. It is a structure which is over-elaborate, which is overlapping, which is confusing, and which, in the case of the Personal Investment Authority, is stumbling before it even starts, as the Government attempt to fill that gap. The authority cannot work because it has no firm base and no clear powers. Only an effective statutory base, setting out its responsibilities, and an independent role can make it work.
The Government tried to over-compensate by over-elaborate rules, as they did in the Berrill regime in the SIB. Then they went into reverse and tried to simplify it all again, throwing everything into confusion, but the PIA is bound, of its nature, because it is inadequately based and its role is unclear, to be complex. One cannot effectively, through those puny regulatory bodies, regulate the huge big business interests that are involved in that and other areas.
The big insurance companies, for instance, have not been regulated. Even now, they are not being called to account. In the case of the big six accountancy houses, the puny structure of professional self-regulation in accountancy and audit is supposed to call to account five or six multinationals, whose fees run into about £3 billion a year, when they permeate the institutions of accountancy and dominate all the committees of accountancy, running the regulatory structure in their interests. It simply cannot be done. We should not continue with self-regulation. It has failed and must be brought to an end.
My hon. Friend the Member for Edinburgh, Central (Mr. Darling), whose efforts in this sphere I much admire, is moving gradually towards supporting a structure of independent regulation. I welcome that process. It is a big advance because Labour Members did not advocate—not, at any rate, during the 1992 election—a structure of independent regulation after the vice-chancellor of the university of Waikato was transferred from his job involving responsibility for trade and industry. However, we are advocating it now, which is right.
We have moved towards the idea of a statutory independent regulator—a new Securities and Investments Board. I welcome that, but it does not go far enough. The structure that I should like to see put in place would be based on the exchange commission in the United States. We should set up an independent, super-regulator with powers to call people to account, to investigate, to prosecute, to fine, to disqualify—all the necessary controls. To support that organisation, a series of commissions should be set up, all of which should be independent, should include representatives of the public interest and should cover the various sectors involved.
Those sectors include banking, where we want an independent regulator and accountancy. We should have a securities and investments commission rather than the puny private company that we now have. We should have a company sector responsible for corporate governance. The structures should come underneath an independent securities and investments commission. That would give us effective, powerful independent regulation. We need that independence and the openness of an open sunshine policy because the City's reputation suffers without it, and a lot depends on that reputation.
The type of scandals that been have allowed to go on and have not been stopped by self-regulation have tarnished that reputation. The financial sector's reputation suffers from the sort of scandals to which we have referred. The inadequacy of accountancy and audit becomes exposed and causes growing public concern unless there is effective independent regulation of accountancy and audit. The reputations of the financial services, the City and the financial sector on which the economy lopsidedly depends are at stake. They will not be saved unless we have an effective guarantee of the public interest in an independent regulator.
The Labour party's attitude to personal pensions lies behind this debate. That attitude is, at best, one of unease and, at worst, one of total hostility. That hostility is shown in the motion because it does not only criticise the poor advice given to people considering what to do with their pensions—a problem which every Conservative Member recognizes—but it describes personal pensions as offering
no real prospect of security".
That shows that the motion goes far beyond a discussion of procedures into the substance of personal pension provision.
I want to make clear the risks and benefits of personal pensions. Many people refer to the obvious risk in personal pensions: the performance of the capital asset that someone has acquired depends on the performances of the stock market and the gilts market. With such pensions, one takes a risk that depends on the future performance of the capital markets. No one can know what will happen to the stock
market in the next 20 years. That is one of the problems with the speculative stories about how much personal pensions are worth.
Equally, there are gambles involved in a traditional occupational pension—a gamble on the person's career, on whether he will stay with one employer for 30 years or move around, on whether he will have a period of unemployment, and on whether he will be on peak earnings at the end of his career. When one changes from an occupational pension to a personal pension, one shifts from a pension that inevitably has an element of risk, because one does not know what one's future career will be, to a pension that has an element of risk because one does not know what will happen to the value of one's savings in the capital markets. Neither pension can guarantee total security and many people would rather take a gamble on the future performance of capital markets than on the future shape of their careers, because many more people now move around more in their jobs. That is why we can expect personal pensions to expand as the labour market changes. It is the Labour party's inability yet again to understand the big economic changes and big changes in the labour market which is the source of its continuing hostility to personal pensions.
We should recognise that there are two distinct problems the problem confronting people who have opted out of SERPS into personal pensions; and that confronting people who have transferred from occupational pension schemes and have gone into personal pensions. I shall consider each problem in turn.
I am sorry that the hon. Member for Glasgow, Garscadden (Mr. Dewar) is not in his place. I find the Labour party's sudden concern about the pension entitlements of people who have left SERPS rather bizarre given what it has been saying over the past two years. Many of us in the Chamber will recall previous speeches by Labour Front-Bench spokesmen in which they denounced the incentives given to people leaving SERPS. We were told that those incentives were too generous, and in particular that the total value of the Exchequer's liabilities that were being saved as a result of people leaving SERPS was much smaller than the total value of the rebates being given to people who left SERPS. If that argument is correct—and we heard it persistently from the Labour Front-Bench team—it cannot also be the case that those people who have left SERPS to take out personal pensions are as severely disadvantaged as many members of the Labour party now claim. The figures do not add up.
Does the hon. Gentleman agree that part of the mythology of the Conservative party involves its justification for reducing the value of SERPS—the demographic time bomb involving the number of elderly people? Does he agree with the statement
we are not facing a crisis caused by the increasing number of elderly people
at the end of a chapter in a book written by someone called David Willetts?
I am grateful to the hon. Gentleman for that plug for my pamphlet. I do not believe in a demographic time bomb. There are good arguments for leaving SERPS and encouraging personal pensions that do not depend on the demographic time bomb arguments. I believe in people registering claims on future resources for their retirement through private contracts and private savings. That is the Conservative approach to pension provision and that is the argument for personal pensions and against SERPS.
The figures that the Labour party has bandied around about the expensive rebates for people leaving SERPS are not consistent with the argument that we have heard today about the supposed problems of people who have left SERPS to take out personal pensions.
It is widely accepted that the financial benefits of leaving SERPS are particularly strong for younger people. We all acknowledge—it is a something that the Government are reviewing as they move towards age-related rebates—that younger people are most likely to benefit from leaving SERPS and taking out a personal pension. The figures prepared by bodies such as the Institute of Fiscal Studies and the Carnegie inquiry into the Third Age clearly show that the typical person leaving SERPS is someone at the beginning of his working career. A research paper for the Carnegie inquiry states that the take-up rate for personal pensions among men aged 22 to 26 who have left SERPS
approaches 50 per cent. whilst for those aged 47–51 it is little over 10 per cent… high take-up rates among younger workers are not surprising if individuals engage in a rational economic calculus of future returns from various types of pension schemes.
By and large, those leaving SERPS have been younger workers who have probably taken a rational economic decision.
It has made sense for younger workers to leave SERPS and more than half of them have done so in order to take out personal pensions. They have many decades ahead of them during which their personal pensions can accumulate in the saving schemes that they have taken out, whereas under SERPS they had only 20 best years during which to accumulate an entitlement.
My final point about SERPS is that the Labour party's feeling for it is rather odd given that SERPS is essentially a negative means test. It is not a system that gives most to those with least; it is earnings related and gives most to people who earn most. One of the problems with SERPS is that people with low and intermittent earnings do not accumulate much of an entitlement. Admittedly, such people will accumulate modest entitlements to personal pensions, but they are not well served by SERPS either. Personal pension provision simply reflects the bias within SERPS—both are clearly earnings related.
Another problem that has caused much concern is people who had occupational pension entitlements. That is a much smaller group than the many millions who opted out of SERPS to take out a personal pension, and people's worries about it are much better founded. It seems odd for anyone whose employer was contributing to his or her pension scheme to opt instead for a personal pension with no employer's contribution. Many personal pension providers now accept that personal pensions taken out in those circumstances are unlikely to be as favourable as remaining with an occupational pension.
Another category is people who have already left an occupational pension scheme, perhaps because they are no longer in employment, or have changed employment. What were those early leavers to do with the lump sum remaining in their original occupational pension scheme? Those people are subject to scrutiny in the notorious KPMG document circulated by the SIB, entitled "The KPMG Study on Pension Transfers". Some of the Labour party's interpretations of the document are simply not consistent with a clear and close reading of the text. As my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) pointed out, the study is essentially concerned with evidence on whether clerical procedures have been followed. Although there may be a problem, we cannot be sure of its size simply on the basis of that study. It is concerned with evidence about record keeping, but that is not the same as saying that there is evidence that bad decisions were taken.
Opposition Members have no evidence that I am wearing shoes, but that does not mean that they have evidence that I am not wearing shoes. If, after much careful scrutiny, an extremely pedantic accountant comes up with a report saying that they have no evidence that I am wearing shoes, it would be no basis for their announcing that the Conservative Benches are full of people who, sadly, do not possess footwear. That is one of the ambiguities that Opposition Members have been shamelessly exploiting in the past few hours.
We must also recognise the crucial point made at the beginning of the report:
There is no automatic connection between a client's file not evidencing compliance and the client suffering financial disadvantage. But non compliance will, in some circumstances, result in financial disadvantage.
Of course it will in some circumstances. The crucial question is how many people are in those circumstances. This much-touted report simply fails to deal with that.
May I consider some of the policy issues that arise from this debate? A parallel can be drawn between the story of personal pensions and the story of personal share ownership. One of the Government's successes in personal share ownership was spreading it widely. The focus was then on ensuring that share ownership was also deeper, which was the origin of marvellous initiatives such as personal equity plans.
The same story applies to personal pensions. The initial success was spreading personal pensions much more widely. The objective must now be to make people's personal pensions deeper—worth more. That means that, alongside taking the rebates that were available from the national insurance fund, we must also ensure that many more people contribute from their own savings and that employers contribute. Instead of always looking at the bad news, we should welcome the fact that a third of people with personal pensions already contribute directly from their own savings. I hope that a consequence of this debate and the debates that have gone on for the past few months is that, in future, more people will recognise that if they want a substantial pension when they retire, they must be prepared to save up for it now.
I also hope that employers will contribute to personal pensions. Looking ahead, there seems to be a sensible compromise between a pure, stand-alone personal pension and traditional occupational pensions which do not take account of changes in the labour market. That sensible compromise is a group personal pension in which an employer identifies a personal pension provider and contributes a top-up for those who take out a personal pension with that provider. Such schemes have lower administrative costs than when individuals take out their own free-standing personal pensions. At the same time, they have the crucial advantage of personal pensions, in that every individual accumulates his or her carefully defined pot of money.
The Department of Social Security's research reveals clear evidence that many employers have been worried about advising on pension matters and encouraging group personal pensions because they were afraid of breaching the terms of the Financial Services Act 1986. Many of the Opposition's criticisms of that Act are misconceived. The problem is not simply that some financial advisers have not followed its terms, but that it created a monopoly by saying that only certain categories of people could give financial advice, excluding others who may in the past have been happy to do so. Employers felt that, unless they were prepared to go through the cumbersome procedure of registering under the Financial Services Act, they could tell their employees nothing about pension provision.
The speech by my right hon. Friend the Secretary of State at the beginning of this debate made it clear that employers can give advice to their employees. If employers feel able to give that advice, and if they work with their employees in developing group personal pension schemes, personal pensions will not just be widely taken up in future, but will also deepen. Thus we shall fulfil the Conservative vision of people accumulating their own pot of savings, through their efforts and assisted by their employers, to ensure that they have a high standard of living in their retirement.
The financial services industry is a large industry. It employs about 2.5 million people and is a crucial part of our economy; some 18 per cent. of our GDP may well be linked to the financial services industry. Most of those who work in it are decent, honest and truthful in their personal lives. That has to be said at the start of a speech which will contain a number of criticisms.
There are problems in that industry that require regulation. Although we must be careful that over-regulation does not damage competitiveness or risk-taking, we have to ensure that there is sufficient regulation to protect the consumer. We are debating whether self-regulation is really adequate.
The Treasury Select Committee, of which I am a member, is currently examining that issue. Clearly, it does not seem to have been adequate until now, because we have had a series of scandals and we have had to reorganise the SROs, FIMBRA and LAUTRO. From July, some areas under their control will be passed to the Personal Investment Authority. The PIA will also have a greater independent element.
I was struck by the comments of a number of those who gave evidence to the Select Committee, who saw self-regulation as an important concept whereby the industry would begin to run itself. They were quite critical of the position we are approaching, in which the PIA has a large independent element. That means that we are moving away from self-regulation towards more independent regulation.
Some parts of the industry take the view that if we are to move away in that sense from self-regulation, we might as well have single-tier statutory regulation. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) said that the move to statutory regulation from self-regulation may not be such a big step in practice, because the elements of each system may contain parts of both. Indeed, a statutory system may well have practitioners closely involved in the way in which it is run.
The man from the Pru, Mr. Mike Newmarch, when he gave evidence to the Select Committee, took the view that we should have a single-tier statutory system which would be a much more accountable and effective form of regulation. Indeed, the Pru announced today that it would prefer to be directly regulated by the SIB. That is all part of the industry's ability to shop around for the regulation that it wants. In a sense, I disagree with that element of the current SRO system, but the Pru is trying to make the point that a single tier of statutory regulation through the SIB or a similar organisation might be the best route.
There is a strong case for change and for a move towards a system of regulation that can inspire greater public confidence. The key issue is confidence. The current scandals will become more serious. The home loans scandal and the pension transfer scandal will find their way on to the front pages and undermine public confidence in that important part of our economy. It is not necessary just for the consumer and for the industry; it is necessary for our economy and our country to have confidence in the financial services industry. That confidence does not exist at the moment.
The Countrywide Independent Advisers told the Select Committee that the public feels little better provided for than it did before the Financial Services Act and, as we have already heard, the Consumers Association regards the present regulatory system as unacceptable and not providing a basis for any confidence.
The pension scandal should not be underestimated. It threatens not just to expose incompetence and bad advice from some salesmen; it will also further undermine the whole financial services industry. When the SIB says that 500,000 workers might need to be compensated, when there is talk of £2 million to £3 million—and when the Association of British Insurers is suggesting that it could be £300 million—in compensation, there is a significant crisis of confidence in the financial services industry. That crisis must be addressed by the Government.
If that amount of compensation or anything like it has to be paid, someone will be paying for it. The people who will be paying for it are those who pay premiums into the various parts of the financial services industry. It will hit the consumer. That is the nature of the problem.
There is more than the problem of individual salesmen being incompetent or dishonest. Some of the media have suggested that that is the central issue, but there is also institutionalised incompetence and dishonesty within some companies that have had respectable reputations to date. As we are now beginning to understand, they have institutionalised both incompetence and dishonesty within their procedures by employing barely trained salesmen for short periods on commission only.
The Norwich Union has now suspended its work force, having admitted the inadequacy of its training after the SIB drew attention to the problem. We should not be to quick to criticise the Norwich, because it took action. If we are too critical and if there is too much publicity, other companies may well be deterred from taking that necessary action.
Evidence to the Treasury Select Committee—I have not had the opportunity independently to evaluate it, so I am just reporting it—was that companies such as Abbey Life have sent salesmen off to work after half a day's training with a copy of the "Yellow Pages". Allied Dunbar employs most of its sales work force on a commission-only basis. General Portfolio has indulged in pyramid selling.
Not all companies have done that. Others, such as Clerical and Medical, are moving towards a salaried sales force. It seems to be working for them. All that shows the degree to which we should be concerned about the standards of many, until now, respectable companies within the financial services industry.
A local concern has already been mentioned. Some 67,000 miners and 27,000 teachers have transferred their pensions from occupational schemes into other schemes where they may well be much worse off as a result. Three pits my constituency have closed, and Daw Mill, the only remaining one, has lost half its work force. As soon as the redundancies were announced, the salesmen were trying to encourage the miners to transfer out of their pension schemes and to invest their redundancy payments in particular ways.
Many people lost because those who were advising them were not competent to do so. They were called independent financial advisers, and in some cases they were not independent enough—and certainly they were not good enough to give advice. Today, the chairman of FIMBRA told the Select Committee that he saw the biggest issue facing the financial services industry as incompetence, as did the chief executive of the PIA when she gave evidence to the Select Committee.
Turing to the PIA, after hearing from both the chairman and the chief executive of the PIA, I am not convinced that they would restore confidence. Mr. Joe Palmer, the chairman of the PIA, was formerly associated with Legal and General, which has recently been fined because of the lack of proper regulation of its work force. To put in charge of an organisation that is seeking to restore confidence in the financial services sector a person with such a record does not inspire confidence in me, and I suspect that it will not inspire confidence in the public. Also, Miss Colette Bowe is associated in the public mind with the Westland scandal.
It does not reflect upon the honesty, integrity or ability of either of those individuals. Although it may be understandable to have one person who has been associated in the public mind with a scandal being placed in charge of a regulatory organisation which is trying to restore confidence, to have in charge of such an organisation two people associated in the public mind with scandals is not the right approach.
I hope that I have made it clear that what I have said does not reflect on either the competence or the integrity of those people, as individuals; it reflects more on the perception that the public may well have of an organisation that—if it is to continue—desperately needs public confidence. I suggest that, if those two people remain in place, it will not have that confidence.
On a point of order, Madam Deputy Speaker. Is it in order for the hon. Gentleman to attack Miss Colette Bowe—who was a civil servant at the time of the Westland incident—in quite a personal way, when she has no opportunity to defend herself, and, I believe, was not in any way criticised for her personal conduct at that time?
That is not a point of order for the Chair. The hon. Member for Hertfordshire, North (Mr. Heald) may well have wanted to intervene on what the hon. Member for Warwickshire, North (Mr. O'Brien) was saying, but it was in order.
Thank you, Madam Deputy Speaker. May I clarify what I said? The hon. Member for Hertfordshire, North (Mr. Heald) made a valid point, and I did not raise the issue without giving it some consideration, but I am rather worried about the position in which the PIA has put itself.
When I heard that those two people would give evidence to the Treasury Select Committee about the PIA, I at first hoped that we could have some confidence in that institution. Having heard the evidence and examined the issue in more detail, however, I do not think that such confidence can exist.
Let me repeat that I do not wish to impugn the backgrounds or integrity of individuals; I am saying that our objective should be not only to establish institutions which—along with those in charge of them—are competent, but to ensure that they are associated in the public mind with images that lead to confidence and faith in those in charge.
I am not making a personal attack. I am saying that, as spokesmen and spokeswomen for the public, we have a duty to ensure that we place people who will secure public confidence in the institutions that we are discussing.
I am also concerned about admission procedures relating to the PIA. I shall not go into the matter in detail: suffice it to say that about 6,000 firms are involved, and some 100,000 salesmen; the PIA has a staff of 350. Many of those 350 people are not involved in direct regulatory work. The size of the problem with which the PIA is required to deal is not reflected in the resources available to it.
Whoever leads the institution, I have grave doubts about whether, in its present form, it can make the necessary series of visits to all companies; moreover, it may not be able to examine what Miss Bowe, in evidence to the Select Committee, called "sick companies" in the detail required to establish whether disciplinary procedures should result from the question marks hanging over them.
The case can be argued for two tiers of regulation. There should, perhaps, be a less stiff constant regulatory system for big companies that achieve adequate standards and meet inspection limits; firm regulation is needed for smaller companies, however. Such companies often work quite close to the margins, and we must ensure that they are properly regulated.
The commissions issue has already been mentioned. Some advocate a move to advice for which fees are paid. That is clearly a better arrangement, but I am not convinced of its practicality. The public seem to accept that they must pay for legal and accountancy advice, but they do not expect to pay for advice on pensions, mortgages or insurance. Before we can enforce changes in commission procedures—we may be able to tighten them up, but not abolish commission altogether—we shall need a cultural change in people's attitude to financial institutions.
Disclosure of commissions is important, however. I welcome the rules that the SIB now seeks to implement—not only those relating to disclosure of commissions, but all the other disclosure rules. Mike Newmarch—the man from the Pru—suggested to the Select Committee that the public would not understand most of the disclosure regulations. I think that he meant that genuinely: many financial products are very complex, and people would need some understanding of them to appreciate their terms fully. Nevertheless, I think that the fact of disclosure, of itself, gives people an opportunity to understand much better what they are purchasing. If we are to retain the present system—the Government have given no indication of a move to a different one—the SIB must do more to ensure and enforce full disclosure.
As I suggested today to representatives of FIMBRA—who agreed—there should be a system enabling me, when approached by someone trying to sell me a financial product such as a pension, to telephone a regulatory organisation and find out whether, at any stage, that person has been barred from practising as a financial adviser. I should be able to do that easily and immediately, just as my clients can telephone the Law Society and find out whether I, as a solicitor, am on the roll.
Not only should people be able to find out whether a financial adviser is currently on the roll, or has been removed from it; they should be able to discover whether question marks have been placed over that adviser's behaviour in the past. FIMBRA currently feels that it ought not to provide such information, although it will reveal whether someone has been removed from its register. The PIA does not seem to be clear about whether it is moving in that direction; I hope that, if it continues to exist, the public will have easy access to such a register.
A number of other issues are relevant to the debate, although we have probably discussed them before. Let me mention a local issue. My constituents are concerned about employers' ability to skim off the so—called surpluses from pensions, and about circumstances that can arise when employers sit on the boards of pension funds.
Atherstone Components, in my constituency, was in trouble, and persuaded the pension fund to buy all the plant and machinery in the factory. The company then went bust, the plant and machinery was worth nothing and the pension fund was massively depleted. As a result, the pensioners may not receive all the money that is due to them.
We also need to ensure that only those who are genuine independent financial advisers can call themselves that. People should not be able to use that general phrase when they are working on commission—unless it is fully declared—or working for only one company.
The fundamental issue is the conflict of interest between advisers and their clients in a deregulated market. Banks, building societies, insurance companies and pension companies all seek to make money out of their clients by providing services. The Government have tried to solve the problem by introducing self-regulation; instead, they have created a rather ramshackle and complex structure of overlapping self-regulatory authorities, which have presided over a series of growing scandals—the Lloyd's insurance market, Guinness, Levitt and, perhaps biggest of all, the pensions scandal.
If the Government are not going to move to statutory regulation, they should take seriously the difficulties that many in the industry see arising at the PIA. There is no public confidence in it. There is a desperate need to ensure that there is public confidence. The industry must succeed for the sake of the British economy. It is an industry that consumers need and in which most of the public are increasingly beginning to lack confidence.
I welcome the debate. It is a timely opportunity for the House to discuss and consider some important matters. I disagree with most of the Opposition motion.
I remind the House of my interest. I have worked in the insurance and pensions industry for over 20 years as an insurance broker. I am an adviser to the Institute of Insurance Brokers. Perhaps most important in terms of this debate, I am an elected member of the Insurance Brokers Registration Council which regulates some, although not all, insurance broking firms under the Financial Services Act 1986.
It may interest the House to know that the IBRC is a statutory regulator, answerable to the House through the Secretary of State for Trade and Industry, operating under the provisions of the Insurance Brokers (Registration) Act 1977 and subsequent amendments. It has a majority of practitioner members, all of whom are elected, which in my experience greatly assists its effectiveness. The registration council was set up to regulate the profession of insurance broking, and I should like to pay tribute to its founder, Mr. Francis Perkins, who sadly died recently, and for whom a memorial service was held in the City of London today.
The IBRC is authorised by the Securities and Investments Board as a recognised professional body. That provides authorisation only for those insurance brokers whose business profile is not wholly or mainly the giving of investment advice. The registration council currently authorises some 1,460 insurance broking firms under the Financial Services Act, out of a total of about 3,850.
The chairman of the council, Mr. Ian Ritchie, wrote recently to all the authorised firms requesting details of any pension transfer business that they had undertaken. No less than 99 per cent. of authorised firms have responded to the survey, and the council's provisional assessment of the responses is that there has been a small number of pension transfer cases transacted by firms authorised by the council. I should make it clear that that relates to people transferring out of occupational schemes into personal pensions.
Seven cases have been identified. It does not yet relate to any who have opted out of SERPS into personal pensions, although my impression is that the number will not be as great as in other sections of the market.
I cannot give the House any idea about the position on pension transfers with those insurance broking firms that are regulated under the Financial Services Act—not by the council but by FIMBRA. There are about 735 such firms. It may surprise some hon. Members to learn that there is a division of regulation under the Financial Services Act of members of the insurance broking profession. It arises entirely because of the drafting of the Financial Services Act and the "wholly or mainly" provision. The registration council has consistently argued that that anomaly should be removed, but that is an issue for another day.
The IBRC scope rule permits firms authorised by the council to transact only life assurance and pensions business, not give other investment advice. It is a narrow scope rule. It is important to remember that the registration council provided perfectly adequate regulation of insurance broking firms for that class of business long before the Financial Services Act came into being.
Under the Insurance Brokers (Registration) Act, the council continues to have a statutory duty, answerable to the House, to oversee all the work of all insurance broking firms for all their business, even that part of the business, such as pension schemes, for which they may be authorised under the Financial Services Act by FIMBRA.
I am sure that the House will see that that leads to considerable difficulty, of which the House should be aware. Intermediaries—insurance brokers—are sometimes struck off the council's register as a result of disciplinary action, often for failing to provide the required evidence of continuing solvency. Yet their authorisation with FIMBRA continues. They drop the term "insurance broker" from their letterhead and continue to give advice about general insurance, subscribing to the Association of British Insurers' code of practice.
The insurance ombudsman, Sir Julian Farrand, in his latest report criticised strongly the ABI code of practice as inadequate. He has constantly called for all insurance intermediaries to be supervised by the registration council, but that idea has not found favour with the ABI or the Department of Trade and Industry, which appears to take the view that statutory regulation of intermediaries can create a barrier to entry to the profession or business, and that it would be anti-competitive.
In essence, if an intermediary is to give advice about life assurance and pensions contracts, he must be authorised by a recognised body under the Financial Services Act; otherwise, it is a crime to give advice. However, he does not have the same statutory obligation to be authorised by anybody to give general insurance advice. General insurance is not the subject of this debate, but it is important for the House to understand that that is what is adding to the confusion in the marketplace about the status of various independent intermediaries. The House needs to grasp this issue firmly.
Too much confusion of the differing objectives of regulation and competition policy lies at the heart of many of the problems that we now see in the Financial Services Act regime. It certainly undermines its effectiveness. That is nowhere better illustrated than in commission payments.
There is justified concern that if one company pays a higher level of commission than another, it can influence or be an inducement to the advice of an adviser and the choice or recommendation of the company. That problem dogged the life assurance and pensions industry for years. When the Financial Services Act was introduced, life offices agreed a maximum commission scale, which most people in the industry believed was in the interests of the consumer.
What happened? The Office of Fair Trading advised that the maximum commission agreement was anti-competitive, and it was scrapped. The result was a bidding up of commissions, with life offices doing deals with high street banks and building societies through tied agency agreements, under which over-the-odds commission has been paid for new business in personal pensions and in endowment policies linked to mortgages. The commission scramble coincided with the changes in pensions legislation which allowed pension transfers and allowed individuals to opt out of either occupational schemes or SERPS into a personal pension plan.
Some six years later, what do we find? The problem of commission and disclosure of status remains unresolved, because of the continuing confusion between the need for strong regulation in the consumers' interest and the anti-competitive argument from the Office of Fair Trading. We still await the outcome of the SIB consultation on the new commission disclosure regime upon which my right hon. and learned Friend the Chancellor insisted.
I would not argue that all independent intermediaries and insurance brokers are whiter than white—some are not—but independent intermediaries have undoubtedly been disadvantaged by the current regime, while so-called tied agents, or appointed representatives, who currently outnumber them by about 10 to one, have gained considerable business volumes, often at the expense of the quality of advice to the consumer. It is my deep suspicion that, when the inquiries into pension transfers are fully unscrambled and resolved, we shall find that the problem was mostly in the tied sector, where people were not properly trained to give advice.
It is therefore crucial that, in any new disclosure regime to be approved by the Chancellor of the Exchequer and the Director General of Fair Trading, in which I am absolutely sure that my hon. Friend the Economic Secretary will have a considerable involvement, independent intermediaries and tied agents are put on an equal footing.
Does my hon. Friend agree that part of the confusion has been the concentration in many debates on the divide between the independent and tied sectors? The consumer requires good advice, and there is a suggestion that somehow "independent" advice does or does not mean good advice, and that "tied" advice does or does not mean good advice. We need good advice, whether it is independent or tied, and we need the same standard for both.
That is true, but the situation is even worse. General intermediaries—household names such as AA Insurance Services and Swinton Insurance—are tied in respect of life assurance. How can they possibly say that they are giving independent advice across the board when, on the general insurance side, they are giving advice from a range of companies while under the Financial Services Act they are tied?
That is why so me firms are no longer regulated by the Insurance Brokers Registration Council. It highlights the extent of the confusion in the minds of the public. I was going to deal with the PIA, but my hon. Friend the Member for Blackpool, South (Mr. Hawkins) reminded me of another important point, for which I am grateful.
It has been said time and again that the public will have greater transparency about where the problems lie in respect of the PIA and who regulates or authorises whom. The trouble is that, unless we square the circle across the insurance industry in terms of intermediary advice, there will continue to be the confusion highlighted by the Consumers Association in its evidence to the Treasury Select Committee the other day. It said that visiting an insurance broker was like going to the worst kind of disreputable second-hand car salesman. I look forward to seeing the Committee's minutes of evidence to clarify that quotation, which has been reported heavily in the financial press. The trouble is that that notion is not true.
The problem is that people do not know the difference between intermediaries who give the best advice and volunteer for effective regulation as all insurance brokers do—as I have already said, there is no statutory requirement to be registered, and one needs to be registered only if one uses the words "broker"—and the typical Arthur Daley outfit which should be drummed out of business. It is a tragedy that that still remains the case.
There are encouraging signs that the commission explosion to which I and other hon. Members have referred is at an end, and that we may yet see a return to the more sensible arrangements of some years ago, when commission had to be earned over a longer period, thus creating a much better link between the quality of advice and the commission received—if a policy lapsed immediately, one received almost no money. That is not what happens at the moment.
It is often suggested that some policyholders dlo not understand the long—term nature of the policy they are buying. On the face of it, that cannot be said of pension policies—one cannot possibly expect to benefit from a pension policy until one reaches retirement age. What has confused the issue, and what lies behind much of the criticism that we have heard today, especially from the Opposition—to the effect that people received bad advice about, for example, opting out of SERPS into a personal pension—is the ability to opt in and out.
People were sold long—term contracts for perhaps 25 or 30 years, whereas their personal circumstances were such that, after two or three years of premium payments, large chunks of which were swallowed up in commission and charges, they had to opt back into SERPS, if they were given the right advice. That is one of the issues that the Government must sort out in their review of the incentives for people to opt out of SERPS.
My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) made a brilliant speech, in which he made it absolutely clear that, although it has to be conceded that there has been bad advice on pension transfers, the scale of the problem may be rather smaller than has been suggested. Although there will be different views about the extent of the problem, it is clear that the industry itself is making excellent progress in putting matters right.
The problems of pension transfer cases are not, as the Opposition would have us believe, evidence that self-regulation does not work—quite the opposite. It is only because regulators, under the supervision of the SIB, have acted as they have that the issue has come so forcibly into the public domain. That is not to say that FSA regulation was perfect when some of the pension transfers about which we are concerned took place.
I have already outlined the problems caused by the commission structure. A matter of even greater concern was the inadequate supervision of life offices by LAUTRO, which meant that far too many representatives were giving advice without proper qualifications or training. More than three years ago, LAUTRO told the all-party insurance and financial services group, of which I am the chairman, that it was tackling the problem head on. We now need to examine the results of its activity.
At that time, more than 200,000 individuals were authorised as appointed representatives or tied agents by LAUTRO for its member firms. We are now down to fewer than 90,000. Why has the number dropped so remarkably? It is because LAUTRO, like FIMBRA and the Insurance Brokers Registration Council, has introduced a regime whereby one will not be authorised without having passed the exams for the professional qualification, with either the Chartered Insurance Institute or the Society of Financial Advisers which is being set up. The industry is now moving towards a situation in which everyone who gives advice will have to have a proper professional qualification before doing so.
LAUTRO realised that Norwich Union had not come up to scratch or met the required professional standard. I dare say that other life assurance companies will receive similar treatment. We should applaud what has happened, and the fact that standards will improve, because that must be in the interests of consumers.
I fail to see how a statutory regulatory regime would have made a scrap of difference to the regulatory improvements that we are now beginning to see. If there is any sadness in this, it is that Norwich Union thinks that it should have an 800-strong direct sales force strong to sell life assurance and pensions contracts. When I was involved with the day-to-day running of my firm, life offices such as Norwich Union used to offer their policies only through insurance brokers and other genuine independent intermediaries, including the banks and building societies in the high street. Of course, that was before the FSA.
With the notable exception of the Bradford and Bingley building society, high street banks and building societies no longer offer independent advice—only tied advice. That is one of the problems that the FSA has created of which we should not be proud, but we call be proud that the industry is at least putting right the quality of advice. Self-regulation is now beginning to deliver a significant improvement in the regulation of investment advice for the benefit of consumers.
In the context of pensions transfers, the current regulatory regime has taken the appropriate action. If the FSA had introduced a statutory regulatory regime, as some suggest is now appropriate, it would not have brought the benefits that some people believe it would, because the same officials at the Department of Trade and Industry and the Treasury and the Securities and Investments Board, or its equivalent, would have drawn up and implemented the various rule books.
It is not meant as any personal criticism of any Minister past or present, but I also strongly suspect that if Ministers had been more directly answerable to the House for regulatory failures, they would have been more, rather than less, defensive in answering questions. We must not forget the lesson of the Barlow Clowes affair. In that case, the ombudsman report said that the officials in the DTI were not sufficiently streetwise to see what was going on in the industry. That is why we must maintain a strong practitioner involvement in all the regulatory regimes.
A number of hon. Members have mentioned the Personal Investment Authority. I simply want to say that the costs of regulation envisaged are far too high, and I fail to see how a 40 per cent. increase in costs for FIMBRA members next year could possibly be said to achieve the Personal Investment Authority's objective of more efficient and cost-effective regulation.
The PIA has not done its homework soon enough and adequately enough on professional indemnity insurance, and it now recognises that. While there has been a lot of consultation already in the formation period for the authority, it would have been better if the prospectus recently published had been more of a consultation document rather than a "take it or leave it" proposition, which has so angered and outraged people in the independent intermediary sector.
Nevertheless, I believe that, on balance, the PIA represents the best alternative available for resolving the current difficulties of the financial services industry, especially those relating to compensation and consumer complaints. Opposition Members should at least welcome the fact, as I do, that my noble Friend Baroness Turner of Camden, who used to sit on the IBRC, will be the ombudsman for the PIA.
There may need to be some further legislative change to help the PIA on its way. Perhaps the best thing that could happen in the next two or three weeks is for the PIA to recognise that a start date of 1 July is probably too ambitious, and to consider a three-month delay so that we can resolve some of the problems.
I will not give way, because I want to draw my remarks to a conclusion.
It is undoubtedly a matter of great concern if individuals have been given wrong advice about their pensions. The financial services industry recognises that fact, and is keen to put matters right. Nevertheless, we should ask ourselves what happens when people make bad choices in other facets of their lives, such as buying the wrong house or the wrong car or the wrong shares, or putting their money in the wrong building society. Do we have, or do we expect to have, a regulatory regime to deal with every silly mistake that consumers make? I believe that we should not expect that.
The last thing I would urge of my hon. Friend the Economic Secretary not to overlook, because it was never answered in the retail regulatory review that the SIB set up on the instructions of the Chancellor 18 months ago, is that we still must work out where the balance should be struck between caveat emptor—let the buyer beware—and a proper regulatory regime for the benefit of consumers.
Over and over again, we have to listen to Conservative Members get up and make self-serving speeches in defence of the financial services industry. I should like to say a few words on behalf of the consumer. The essential point about the pension transfer scandal is that it goes to the heart of what is wrong with our financial services industry and the regulatory regime with which we have been saddled after 14 years of Tory Government. The Consumers Association described the financial services industry as one which is
characterised by a level of incompetence, greed, arrogance and fraud".
That just about sums it up. The problem that we face in 1994 is that, as a result of financial deregulation and the policies of the Government, more and more people are being exposed to the workings of the financial services industry, and the regulatory system is failing them. As more and more ordinary consumers whose mothers and fathers would have never had any dealings with insurance agents or stock brokers or the financial services industry have become engaged with them,-it becomes clearer that the regulatory system has failed.
Where did the pensions transfer scandal start? I believe that it started, as did so many of the ills that currently beset us, in the triumphalist atmosphere after the 1983 election.
After that election, a group of Thatcherites based at the Centre for Policy Studies began their so-called campaign to free the pensions industry. It was not about freeing the pensions industry, but about freeing the City to make vast profits out of hapless consumers by selling them insurance and other products. Norman Fowler, the then Secretary of State responsible, set up a retirement study group which involved a number of people including Mark Weinberg, the then chair of Allied Dunbar Assurance plc. At the time when the Government were involved in that project, Derek Bandey of the National Association of Pension Funds Ltd. Said:
I kept warning the Government that there is more freedom, and more security in a fund managed by elected trustees than in private pensions managed by a bank or an insurance company.
The association also said:
It would be obdurate and shortsighted of the Government to disregard the strength of feeling about the very real disruption that must follow if the proposals are implemented … We regret that the stability necessary to provide for the long-term retirement needs of the working population is now to be destroyed",
and destroyed it was.
The Social Security Bill 1986 contained incentives for people to go into their private pension—a 2 per cent. rebate on national insurance contributions—and it was described at the time as a cowboys' charter. Some Conservative Members have talked about the benefit of hindsight, but, at that time, people tried to put to the Government the dangers that would follow from deregulation and opening up ordinary people to the attentions of the cowboys in the financial services market.
As it happens, at the Department of Social Security in those days, there was a Parliamentary Under-Secretary called John Major. When he was asked about the possibility that many people might lose under the new regime that he was bringing in and what he would do to stop people losing out badly, he did not quite say that it was nothing to do with him, but he said:
The concept of turning this into a one-way risk-free option is entirely alien.
In other words, people were going to lose and he had no plans to do anything about it. In that Bill, John Major turned down statutory limits on commission charges which would have been the answer to many of the problems that we face today. He turned down statutory limits on administrative charges which would have also spared many people the financial misery that they face today.
With the Social Security Bill 1986 and with the green light being given to the private pension industry cowboys, the cowboys went to work and we now see the results. The KPMG survey, to which hon. Members have referred many times—I shall not repeat what has been said-was a careful analysis of 735 client files which found that 91 per cent. did not comply with regulations and that 37 per cent. were suspect.
Conservative Member after Conservative Member has bobbed up to say that the press and Labour Members were making too much of the report, that the report was concerned only with technicalities and that there was not much to worry about. For Conservative Members to say that the KPMG report is simply a matter of technicalities is like Al Capone saying that he was done for his tax problems. The KPMG report revealed, and the further inquiries that the SIB is conducting will reveal, that tens or hundreds of thousands of people will have lost out because of the activities of pensions salesmen. They were not pensions salesmen who did not know, or who had not read the right forms, or who had not been trained, but pensions salesmen who were driven by a commission-led system so that they did not care about the outcome as long as they could bank their commission. Some Labour Members will be able to speak from personal experience about the damage that those pensions salesmen have wrought in their communities.
Let us hear less from Tory Members about the problems being mere technicalities. The problems are structural and relate to the workings of an under-regulated sector and commission-led salesmen. One of the characteristics of the debate on the pension trusts debacle has been a high degree of complacency from both the industry and Conservative politicians. Tory Members said that the pension transfer scandal shows that self-regulation works and we should look at how the industry has moved to deal with the matter. The fact is that it has taken from 1988 until 1993 for the regulatory authorities to do anything about a problem that was foreseen when the legislation was introduced.
A series of representatives of the industry have appeared before the Treasury and Civil Service Select Committee and breathed complacency and smugness. Colette Bowe, the executive-to-be of the Personal Investment Authority, said that the problem with pension transfers was largely an issue of competence. We had Mr. Newmarch from Prudential" which was heavily involved in selling pensions to mineworkers to their financial detriment. Mike Newmarch said that Prudential had examined its affairs carefully and found little evidence to support any need for concern among the pension transfers that it had arranged. Up and down the country, people who bought private pensions from Prudential say differently. Mr. Newmarch talked about the possibility of poor selling on the margin.
Worst of all perhaps, Godfrey Jillings, the chief executive of FIMBRA, said that the SIB, in pursuing its investigations into pension transfers, made a mountain out of a molehill. The Chancellor of the Exchequer, Mr. Kenneth Clarke, showed more complacency.
He is no colleague of mine. He came before the Select Committee reeking of complacency and said that the SIB appears to be dealing with the matter; it seems to be on top of the problem. He should tell that to the thousands of pensioners who now have a shadow of fear over their old age because they believe that, as a result of the activities of private pension salesmen, they will be worse off than if they had stayed with their occupational pensions.
Why are the issues important?.They are important not only because the industry is anxious to have its interests catered for. They are important, first, because of the personal plight of the ordinary people who have incurred serious financial losses and who are living in a shadow of fear; and, secondly, because we have a Government who are committed to moving key elements of the welfare state into the private insurance sector.
We have heard the discussions and we have read the papers about the possibility of not only expanding the private pension sector but moving sickness and unemployment insurance into the private insurance sector. If the Government tell ordinary people that the things that they took for granted in the past—security in sickness, security in old age and security in unemployment—will be moved into the private pensions sector, the Government must give them an assurance that the financial services sector is properly regulated. However, that assurance cannot be given at present.
The issues are also important because in the 1990s patterns of unemployment are changing out of all recognition. When I left school in the 1970s, people left school and sought a profession, be it hairdressing, advertising or banking; we were looking for a job for life. However, young people leaving school now are looking at careers where they will move through a whole series of employers. Perhaps they will work much more on a freelance basis than we or our parents envisaged.
When we talk about a working environment in the year 2000 and beyond, people will not be looking at a single employer for life. They will be looking at a series of employers, a higher level of self-employment than we have seen and a higher level of freelance work than we have seen. That makes it important for the financial services industry, as it relates to personal portable pensions, to be beyond reproach and properly regulated.
The issues are also important because they shed light on the problems that are built into the financial services industry, to which I referred earlier, and the predatory nature of the industry. That predatory attitude is leaking into the activities of banks and building societies. We all find in our postbags complaints from people about the changed attitude in the high street banks and building societies.
The question that the House must address is what should happen now. One thing that should happen is that we should hear fewer complacent and self-serving speeches from Tory politicians and paid representatives of the industry. First, the financial services industry needs to be called to account for the pension transfer scandal. If necessary, people must be prosecuted for mis-selling. With all the soft soap and the talk about the matter being one of technicalities, there is a danger that the guilty people—the managers of organisations who deliberately drove their salesmen to meet targets, regardless of the benefits of the product that they were selling—will go untouched. First and foremost, the people who bought the pensions and incurred a loss want to see the industry called to account; it must not be allowed to get off scot free.
Secondly, it is important that any investigations into what happened should be made in the open. Last but not least, all the consumers who have lost out should be fully compensated. It is important that Ministers realise that it should not be for the individuals who bought the private pensions to think that they might have been sold a dodgy or inadequate pension. The industry must identify those people and contact them all. Where there has been a loss as a result of mis-selling, the people must be compensated. That is what consumers want to know. It should not be up to them to know that they have been sold a poor product. They must all be contacted, and they must all be compensated.
Another thing that should happen is that Ministers must look seriously at a system of commission-only financial advisers. I have no doubt that if we clear away the verbiage about training and competence, at the heart of the problems is a commission-only system which drives people to make sales, whether or not the product that they are selling is in the long-term good of the client.
We must also ensure that we have proper disclosure under whatever regulatory scheme eventually unfolds. I have lost count of the times that representatives of the industry have told the Treasury and Civil Service Select Committee that we cannot have disclosure because the consumer would not understand it and would not know what to do with the information. That attitude is patronising, arrogant, smug and self-serving. Of course, there must be elements of disclosure which even the simplest consumer like myself can understand. The industry must not be allowed to get away with saying that it will not disclose commission and relevant information because the poor consumer will not understand.
Above all, what should happen is that the Government, who are committed to a large and expanding financial services sector, and who some of us believe are committed to moving elements of the welfare state into the private insurance market, must look seriously at the financial services regime. If the current regime has failed, and if the PIA is dead on arrival—as some of us believe—the House must look sooner rather than later at a tough system of direct statutory regulation.
On the pension transfer issue, the right hon. and learned Member for Rushcliffe said that anyone who has been adversely affected can see their way to a remedy. Unfortunately, that is not the case. Thousands of people who may have been adversely affected do not know what the remedy is, and they want the Minister to shed some light on the issue tonight.
The Government seek to dismiss the idea that the question of legislation on financial services can be opened up once again. The Chancellor of the Exchequer has dismissed the notion of statutory regulation. He said to the Select Committee:
At the moment I have seen nothing which suggests to me that it calls for fresh statutory provision.
Far too many hon. Members who speak about the subject of financial services, far too many who serve on Committees and far too many people who advise the Government represent vested interests and, essentially, represent the industry. It is time the House listened to a balance of voices. If the intention is to open ordinary consumers up to the attention of the financial services industry, people deserve an industry that is cleaner, better regulated and more honest than the current one. The pensions transfer issue is a major scandal—a fact that all the speeches by paid advisers to the industry will not alter. The public are waiting to hear what Ministers plan to do, especially about the structural problems in financial services and about regulation of the industry.
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.
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?
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 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—
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 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.
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
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.
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 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 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.
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. 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.
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 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 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
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 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—
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.
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?
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 and is one example of them. For some reason, the Government seem paralysed and are not prepared to do anything about it. Before he became a Minister, the Economic Secretary used to say there were many criticisms of the regulatory system, but, since taking office, he has said nothing about it. Not surprisingly, the Chancellor has not turned his attention to the matter in detail.
The industry employs 2.5 million people who look to effective regulation to carry out their trade. The public depend on the financial services industry and will increasingly look to it for pensions and savings products. People look to the House and the Government to start to govern and put in place a regulatory system that commands public confidence, but I suspect that when the Minister replies, we shall yet again listen in vain for assurances as the Government continue to abdicate their responsibility in this crucial sector.
On a point of order, Madam Speaker. Is it in order for me to clarify that my reference to Atherstone Components was a reference to a company which has been taken over in the past three years by reputable directors, and that the pension scheme to which I referred was the Burlington pension scheme which is the one being questioned by those workers now at Atherstone components?
I am grateful to the hon. Member for clarifying his earlier statement. I hope that all hon. Members, before they make speeches and comments, will ensure that what they have to say is absolutely correct before they stand in the House and make such statements. [Interruption.] Order. That applies to all Members of the House, irrespective of their status.
We have had a serious and measured debate, as befits the subject, which is of serious concern to many of our constituents and has raised anxieties beyond the House. I say immediately that I welcome the opportunity of answering what I think has been a forthright and measured debate on an important subject.
The Government give high priority to investor and depositor protection and I shall seek to argue that, in a number of ways, we have sought significantly to enhance the protection of both. We also have an interest in free and fair markets. The employment in the industry to which the hon. Member for Edinburgh, Central (Mr. Darling) referred is extremely important, as are the liquidity and trade it brings to the country. However, while a balance must always be struck between the needs of an important industry—as part of our economy—and the protection of investors and depositors, I must make it clear that, in the context of our responsibilities, the Government and I will always place more emphasis on the latter.
In the short time that is available for me to respond to an extensive debate, let me observe the proper courtesy and refer to some of the points raised by hon. Members. Following the opening speeches by the hon. Member for Glasgow, Garscadden (Mr. Dewar) and my right hon. Friend the Secretary of State for Social Security, the right hon. Member for Berwick-upon-Tweed (Mr. Beith) made an important point about commission-driven business. That point was picked up by a number of hon. Members, including the hon. Member for Garscadden.
There is a lot of sloppy thinking about this matter. I do not agree with those who say that commission must be outlawed; I do not believe that it is necessarily a bad thing. I also believe that, if we highlight commission as the cause of some of the serious problems that have undoubtedly arisen, we may not be dealing with the real cause of those problems.
If commission related to these or other products were outlawed, it would certainly lead to a diminution in the number of distribution outlets. Moreover, many people who would otherwise want to give advice—tied company representatives—would find themselves in a difficult position if they could not give that advice, whether on a commission basis or objectively. There is a danger that people would be even less well informed about the products on offer.
Surely transparency of commission is much more important. There should be much more clarity about what is involved in buying a product: we should ensure that people understand what they are getting into.
If I may presume to make one small criticism of the debate, I think that there was inadequate discussion of the awareness of the investing public: precious few hon. Members mentioned that. The Government—as well as the House, in various capacities—should turn their mind to how we can ensure that our constituents are more aware of the novelty and content of products, and the risks involved.
We can seek to construct a system that will create greater public confidence in the industry, but we cannot deny that "caveat emptor" must play its part. The taxpayer cannot always pick up the bill for things that go wrong, any more than he can provide an absolute guarantee that everything will go right. We must place some emphasis on protecting the individual.
I hope that the hon. Gentleman will allow me to make some progress in the limited time available. I will try to give way later.
The right hon. Member for Berwick-upon-Tweed mentioned the PIA. I reiterate my belief that its establishment may have advantages. I am subject to some limitation: I must wait for a report that I am expecting from the Director General of Fair Trading about the competition aspects before I can extol the PIA with more enthusiasm.
However, although it may not be the only show in town, I think it is the best show in town and that it is "on track". I hope that the various constituents of FIMBRA and LAUTRO will view it favourably. I also believe that it should not, and will not, be deflected by the self-interest of some of its detractors. I hope that its prospectus will be carefully and favourably considered.
The right hon.Member for Berwick-upon-Tweed also spoke of the need for tougher statutory regulation. I would argue that that is exactly what we have tried to introduce, within the ambit of the Financial Services Act. The hon. Member for Edinburgh, Central, with his revolutionary approach, would seek to cast aside our present system in favour of a lurch into the unknown—a new direct, dirigiste statutory system of regulation. As my hon. Friend the Member for Ryedale (Mr. Greenway) said, we do not support such a system.
What I found most incredible about the speech of the right hon. Member for Berwick-upon-Tweed was his comment, after he had made the points that I have mentioned, that he did not agree with the motion but would nevertheless vote for it. That is another typical example of the Liberal Democrats' wish to appeal to all aspects of opinion.
My hon. Friend the Member for Bournemouth, West (Mr. Butterfill), whom I acknowledge as chairman of the all-party occupational pensions group, made an outstanding speech. He spoke about the KPMG report, and said that the scale of inappropriate selling may not be as widespread as some alarmists have suggested. I agree entirely.
The degree of non-compliance with the rules of conduct does not necessarily translate itself equally into the extent of possible mis-selling or disadvantaged selling. That is why the Securities and Investments Board has established a steering group to look into these matters and take a considered and careful analysis of the extent to which things have gone wrong.
My hon. Friend the Member for Bournemouth, West also said that the SIB should have insisted from the beginning on one self-regulating organisation rather than two for the retail sector. Because he was a member of the famous Financial Services Bill Committee, my hon. Friend will remember that there was an argument in the mid-1980s about not having a streamlined, simplistic approach towards regulation, and that there might need to be diffusion.
With the benefit of hindsight, that was an erroneous judgment about how things should or would turn out. The legislation does enable a more streamlined structure to be delivered, and that is exactly what is happening.
The Government's approach has been to seek to maximise within the existing legislation the powers that are available. Andrew Large's report, which I wholeheartedly endorse and support, is determined to do exactly that, by bringing about a quantum leap in the standards and adequacy of investor protection, by using its powers of enforcement, by having more adequate standards of monitoring, and by ensuring that the competence of the SROs to oversee is more adequately met. I believe that it has already signified that such changes are in the making.
My hon. Friend the Member for Bournemouth, West spoke also about the problems of professional indemnity insurance. The PIA is aware of the problem. Cover is available, but I acknowledge that it is at a price. I expect the PIA to look at that.
My hon. Friend made an important point about the training of trustees. That was looked at by the Goode report. It made a number of recommendations in that regard, one of which was that companies should allow time off for their employees who are trustees of occupational pension trust schemes, so that they can engage in training. I attach great importance to the training of trustees, and it is an important recommendation.
The hon. member for Great Grimsby (Mr. Mitchell) is not currently in the Chamber, but he raised the problems of the cost and burden of commission charges. He said that he felt that, in future, pension provision would be inadequate. That point was picked up by my hon. Friend the Member for Havant (Mr. Willetts), who said that he did not expect a demographic time bomb to explode. However, a theme running through much of the debate was whether provision, in addition to that provided by the state, will be adequate for the long-term future, and whether it will disappoint those who have contributed to it.
We know that the size of the working population in this country will diminish relative to the pensioned population. Currently the ratio is about 3.3:1. Over the next 50 years, it will reduce to 2.5:1. That need not necessarily bring about major problems if the economy continues to grow, and grows substantially, and if both the private and public sectors can maintain their obligations.
However, if the state is not to place an impossible burden on this and future generations, the case can be argued for increasing private provision. That is why the Government have supported the case for personal pensions. That is why the arguments for deferred consumption and displacing spending now for longer-term provision to care for an increasingly elderly populace are well made, and will be delivered more efficiently through the private rather than the public sector.
My hon. Friend the Member for Havant made an extremely telling and compelling speech. He denounced Labour's inability to understand that the labour market has changed. Such changes make more appropriate our provision for personal pensions rather than for a monopoly of state schemes. My hon. Friend also said that the concern about transfers was better founded than that about opt-outs. That is absolutely correct.
The hon. Member for Warwickshire, North (Mr. O'Brien) said that there was a crisis of confidence in the industry. That is an overstatement. There is legitimate concern about the problems that we have been debating, but it is in no one's interest to be alarmist. The Government have sought to be neither alarmist nor complacent about those problems. The hon. Gentleman said that the PIA might not have sufficient resources, but it has also been argued that it is going to make too much of a demand by way of subvention on its members.
It is true that the projected costs for the new PIA will be more than the sum total of the existing running costs of LAUTRO and FIMBRA, but good regulation costs money. Also, there is a clear trade-off between the cost of compensation, which is made if there is inadequate regulation, and the cost of regulation itself. The prospectus for the PIA contains reasonable and modest proposals for funding such activities.
The hon. Gentleman also spoke about Mr. Palmer and Miss Colette Bowe, the chairman and chief executive of the PIA. I consider Mr. Palmer to be well qualified to do the job. He gave considerable public service as a member of the board of the SIB, and it is hurtful and inaccurate to suggest that he is unfit to fulfil the valued role that he is currently undertaking.
My hon. Friend the Member for Ryedale spoke about the Insurance Brokers Registration Council. It is interesting that it has a lower incidence of problems with transfer business: that is indicative of the IBRC's high standards. He also said that a new disclosure regime must put tied agents and independent intermediaries on the same footing. That is an extremely important point, which was also raised by my hon. Friend the Member for Romsey and Waterside (Mr. Colvin). People must understand that the intention is that there should be a more level playing field between tied representatives and independent financial advisers.
For many years, we have been all around the houses on the issue of commission disclosure, and it was only when my right hon. and learned Friend the Chancellor of the Exchequer faced up to the problem, made a decision and ensured that it applied not only to independent financial advisers but, on an equivalent basis, to the management charges of the tied sector, that we witnessed a significant change, which has been widely welcomed not only in the financial services industry but by the investing public.
I am sorry, but I cannot give way. I wish to deal with the points that have already been made.
The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) spoke up for the consumer, and I congratulate her on that. She said that the industry must be beyond reproach. I agree that that is an aspiration which the industry should always hold before it.
My hon. Friend the Member for Esher (Mr. Taylor) did not advocate statutory regulation, but said that the present system must work better. I agree, and that is exactly the course on which the Government have embarked.
My hon. Friend called for redress for those who have been disadvantaged by the problems that we have discussed, and the complicated issues involved in assessing exactly how that can be brought about are now being considered by the working party and steering group of SIB. I attach great importance to the assurance given by the chairman, Mr. Andrew Large, that redress must be forthcoming, but it must not be at the taxpayer's expense. Why should the taxpayer stand as an indemnity behind such cases? It must be for the industry to put right any mistakes that have been made.
I shall give way in a moment.
The hon. Member for Falkirk, East (Mr. Connarty) said that there was inadequate training for representatives. I share his concern to deliver higher standards of training in this respect. It is one of the issues that the PIA should be considering.
My hon. Friend the Member for Romsey and Waterside, with whom I feel a special sympathy for having to make a speech at 9.16 pm at the tail end of a long debate, welcomed the PIA in principle; I thank him for that. He asked to whom it will be accountable. The answer is that the PIA will be accountable to the SIB. It will have to determine whether the PIA, as an SRO, is conducting and fulfilling the statutory requirements. It will be possible for such authorisation to be withdrawn if it is not fulfilling those requirements.
In that and other ways, I believe that the Government are delivering a step change in standards of investor and depositor protection in the country. We have taken very seriously the concerns that have been expressed in the debate, as I am sure have members of the PIA and the industry more widely.
We must ensure for the future that we have a system of private pensions that meets people's aspirations, but delivers them the security they require. We must have for the future a system of personal social security that not only relies on the provision of state finance but allows people to make provision for themselves.
|Division No. 190]||[10.00 pm|
|Abbott, Ms Diane||Dixon, Don|
|Adams, Mrs Irene||Dobson, Frank|
|Ainger, Nick||Donohoe, Brian H.|
|Ainsworth, Robert (Cov'try NE)||Dowd, Jim|
|Allen, Graham||Dunwoody, Mrs Gwyneth|
|Anderson, Donald (Swansea E)||Eagle, Ms Angela|
|Anderson, Ms Janet (Ros'dale)||Eastham, Ken|
|Armstrong, Hilary||Enright, Derek|
|Austin-Walker, John||Etherington, Bill|
|Banks, Tony (Newham Nw)||Evans, John (St Helens N)|
|Barnes, Harry||Fatchett, Derek|
|Barron, Kevin||Faulds, Andrew|
|Battle, John||Field, Frank (Birkenhead)|
|Bayley, Hugh||Fisher, Mark|
|Beckett, Rt Hon Margaret||Flynn, Paul|
|Beith, Rt Hon A. J.||Foster, Rt Hon Derek|
|Bell, Stuart||Fraser, John|
|Benn, Rt Hon Tony||Galloway, George|
|Bennett, Andrew F.||Gapes, Mike|
|Benton, Joe||Garrett, John|
|Bermingham, Gerald||George, Bruce|
|Berry, Dr. Roger||Gerrard, Neil|
|Betts, Clive||Gilbert, Rt Hon Dr John|
|Blair, Tony||Godman, Dr Norman A|
|Blunkett, David||Golding, Mrs Llin|
|Boateng, Paul||Gordon, Mildred|
|Bray, Dr Jeremy||Gould, Bryan|
|Brown, Gordon (Dunfermline E)||Graham, Thomas|
|Brown, N. (N'c'tle Upon Tyne E)||Griffiths, Nigel (Edinburgh S)|
|Bruce, Malcolm (Gordon)||Griffiths, Win (Bridgend)|
|Burden, Richard||Grocott, Bruce|
|Byers, Stephen||Gunnell, John|
|Callaghan, Jim||Hain, Peter|
|Campbell, Mrs Anne (C'bridge)||Hall, Mike|
|Campbell, Menzies (Fife Ne)||Hanson, David|
|Campbell, Ronnie (Blyth V)||Hardy, Peter|
|Campbell-Savours, D. N.||Harman, Ms Harriet|
|Canavan, Dennis||Harvey, Nick|
|Cann, Jamie||Hattersley, Rt Hon Roy|
|Chisholm, Malcolm||Henderson, Doug|
|Clapham, Michael||Heppell, John|
|Clark, Dr David (South Shields)||Hill, Keith (Streatham)|
|Clarke, Eric (Midlothian)||Hinchliffe, David|
|Clarke, Tom (Monklands W)||Hoey, Kate|
|Clelland, David||Hogg, Norman (Cumbernauld)|
|Clwyd, Mrs Ann||Home Robertson, John|
|Coffey, Ann||Hood, Jimmy|
|Cohen, Harry||Hoon, Geoffrey|
|Connarty, Michael||Howarth, George (Knowsley N)|
|Cook, Frank (Stockton N)||Howells, Dr. Kim (Pontypridd)|
|Cook, Robin (Livingston)||Hoyle, Doug|
|Corbett, Robin||Hughes, Kevin (Doncaster N)|
|Corbyn, Jeremy||Hughes, Robert (Aberdeen N)|
|Corston, Ms Jean||Hughes, Simon (Southwark)|
|Cousins, Jim||Hutton, John|
|Cryer, Bob||Ingram, Adam|
|Cummings, John||Jackson, Glenda (H'stead)|
|Cunliffe, Lawrence||Jackson, Helen (Shef'ld, H)|
|Cunningham, Jim (Covy SE)||Jamieson, David|
|Cunningham, Rt Hon Dr John||Janner, Greville|
|Dafis, Cynog||Jones, Barry (Alyn And D'side)|
|Dalyell, Tam||Jones, Leuan Wyn (Ynys Môn)|
|Darling, Alistair||Jones, Jon Owen (Cardiff C)|
|Davidson, Ian||Jones, Lynne (B'ham S O)|
|Davies, Bryan (Oldham C'tral)||Jones, Martyn (Clwyd, Sw)|
|Davies, Rt Hon Denzil (Llanelli)||Jowell, Tessa|
|Davies, Ron (Caerphilly)||Kaufman, Rt Hon Gerald|
|Davis, Terry (B'ham, H'dge H'l)||Keen, Alan|
|Denham, John||Kennedy, Jane (Lpool Brdgn)|
|Dewar, Donald||Khabra, Piara S.|
|Kilfedder, Sir James||Quin, Ms Joyce|
|Kilfoyle, Peter||Radice, Giles|
|Kinnock, Rt Hon Neil (Islwyn)||Randall, Stuart|
|Lestor, Joan (Eccles)||Raynsford, Nick|
|Lewis, Terry||Redmond, Martin|
|Litherland, Robert||Reid, Dr John|
|Lloyd, Tony (Stretford)||Robertson, George (Hamilton)|
|Llwyd, Elfyn||Robinson, Geoffrey (Co'try NW)|
|Loyden, Eddie||Roche, Mrs. Barbara|
|Lynne, Ms Liz||Rogers, Allan|
|McAllion, John||Rooker, Jeff|
|McAvoy, Thomas||Rooney, Terry|
|McCartney, Ian||Rowlands, Ted|
|Macdonald, Calum||Ruddock, Joan|
|McFall, John||Salmond, Alex|
|McKelvey, William||Sedgemore, Brian|
|Mackinlay, Andrew||Sheerman, Barry|
|McLeish, Henry||Sheldon, Rt Hon Robert|
|McMaster, Gordon||Shore, Rt Hon Peter|
|McNamara, Kevin||Short, Clare|
|Madden, Max||Simpson, Alan|
|Maddock, Mrs Diana||Skinner, Dennis|
|Mandelson, Peter||Smith, Andrew (Oxford E)|
|Marek, Dr John||Smith, C. (Isl'ton S & F'sbury)|
|Marshall, David (Shettleston)||Smith, Rt Hon John (M'kl'ds E)|
|Marshall, Jim (Leicester, S)||Smith, Llew (Blaenau Gwent)|
|Martin, Michael J. (Springburn)||Snape, Peter|
|Martlew, Eric||Soley, Clive|
|Maxton, John||Spearing, Nigel|
|Meacher, Michael||Squire, Rachel (Dunfermline W)|
|Meale, Alan||Steinberg, Gerry|
|Michael, Alun||Stevenson, George|
|Michie, Bill (Sheffield Heeley)||Stott, Roger|
|Milburn, Alan||Strang, Dr. Gavin|
|Miller, Andrew||Straw, Jack|
|Mitchell, Austin (Gt Grimsby)||Taylor, Mrs Ann (Dewsbury)|
|Moonie, Dr Lewis||Taylor, Matthew (Truro)|
|Morgan, Rhodri||Thompson, Jack (Wansbeck)|
|Morley, Elliot||Turner, Dennis|
|Morris, Rt Hon A. (Wy'nshawe)||Vaz, Keith|
|Morris, Estelle (B'ham Yardley)||Walker, Rt Hon Sir Harold|
|Morris, Rt Hon J. (Aberavon)||Wallace, James|
|Mowlam, Marjorie||Walley, Joan|
|Mullin, Chris||Wardell, Gareth (Gower)|
|Murphy, Paul||Wareing, Robert N|
|Oakes, Rt Hon Gordon||Watson, Mike|
|O'Brien, Michael (N W'kshire)||Wicks, Malcolm|
|O'Brien, William (Normanton)||Williams, Rt Hon Alan (Sw'n W)|
|O'Hara, Edward||Williams, Alan W (Carmarthen)|
|Olner, William||Wilson, Brian|
|O'Neill, Martin||Winnick, David|
|Orme, Rt Hon Stanley||Worthington, Tony|
|Pickthall, Colin||Wray, Jimmy|
|Pike, Peter L.||Wright, Dr Tony|
|Pope, Greg||Young, David (Bolton SE)|
|Powell, Ray (Ogmore)|
|Prentice, Ms Bridget (Lew'm E)||Tellers For The Ayes:|
|Prentice, Gordon (Pendle)||Mr. Eric Ilsley and Mr. John Spellar.|
|Ainsworth, Peter (East Surrey)||Banks, Matthew (Southport)|
|Aitken, Jonathan||Banks, Robert (Harrogate)|
|Alexander, Richard||Bates, Michael|
|Alison, Rt Hon Michael (Selby)||Batiste, Spencer|
|Allason, Rupert (Torbay)||Bellingham, Henry|
|Amess, David||Bendall, Vivian|
|Ancram, Michael||Beresford, Sir Paul|
|Arbuthnot, James||Biffen, Rt Hon John|
|Arnold, Jacques (Gravesham)||Blackburn, Dr John G.|
|Arnold, Sir Thomas (Hazel Grv)||Body, Sir Richard|
|Ashby, David||Bonsor, Sir Nicholas|
|Aspinwall, Jack||Booth, Hartley|
|Atkins, Robert||Boswell, Tim|
|Atkinson, David (Bour'mouth E)||Bottomley, Peter (Eltham)|
|Atkinson, Peter (Hexham)||Bottomley, Rt Hon Virginia|
|Baker, Rt Hon K. (Mole Valley)||Bowden, Andrew|
|Baker, Nicholas (Dorset North)||Bowis, John|
|Baldry, Tony||Boyson, Rt Hon Sir Rhodes|
|Brandreth, Gyles||Goodlad, Rt Hon Alastair|
|Brazier, Julian||Goodson-Wickes, Dr Charles|
|Bright, Graham||Gorman, Mrs Teresa|
|Brown, M. (Brigg & Cl'thorpes)||Gorst, John|
|Browning, Mrs. Angela||Grant, Sir A. (Cambs SW)|
|Bruce, Ian (S Dorset)||Greenway, Harry (Ealing N)|
|Budgen, Nicholas||Greenway, John (Ryedale)|
|Burns, Simon||Griffiths, Peter (Portsmouth, N)|
|Butcher, John||Grylls, Sir Michael|
|Butterfill, John||Gummer, Rt Hon John Selwyn|
|Carlisle, John (Luton North)||Hague, William|
|Carlisle, Kenneth (Lincoln)||Hamilton, Rt Hon Sir Archie|
|Carrington, Matthew||Hamilton, Neil (Tatton)|
|Carttiss, Michael||Hampson, Dr Keith|
|Cash, William||Hanley, Jeremy|
|Churchill, Mr||Hannam, Sir John|
|Clappison, James||Harris, David|
|Clark, Dr Michael (Rochford)||Haselhurst, Alan|
|Clarke, Rt Hon Kenneth (Ruclif)||Hawkins, Nick|
|Clifton-Brown, Geoffrey||Hawksley, Warren|
|Coe, Sebastian||Hayes, Jerry|
|Colvin, Michael||Heald, Oliver|
|Congdon, David||Heathcoat-Amory, David|
|Coombs, Anthony (Wyre For'st)||Hendry, Charles|
|Coombs, Simon (Swindon)||Heseltine, Rt Hon Michael|
|Cope, Rt Hon Sir John||Higgins, Rt Hon Sir Terence L.|
|Cormack, Patrick||Hill, James (Southampton Test)|
|Couchman, James||Hogg, Rt Hon Douglas (G'tham)|
|Cran, James||Horam, John|
|Currie, Mrs Edwina (S D'by'ire)||Hordern, Rt Hon Sir Peter|
|Curry, David (Skipton & Ripon)||Howard, Rt Hon Michael|
|Davies, Quentin (Stamford)||Howarth, Alan (Strat'rd-on-A)|
|Davis, David (Boothferry)||Howell, Rt Hon David (G'dford)|
|Day, Stephen||Howell, Sir Ralph (N Norfolk)|
|Deva, Nirj Joseph||Hughes Robert G. (Harrow W)|
|Devlin, Tim||Hunt, Rt Hon David (Wirral W)|
|Dickens, Geoffrey||Hunt, Sir John (Ravensbourne)|
|Dicks, Terry||Hunter, Andrew|
|Dorrell, Stephen||Hurd, Rt Hon Douglas|
|Douglas-Hamilton, Lord James||Jack, Michael|
|Dover, Den||Jackson, Robert (Wantage)|
|Duncan, Alan||Jenkin, Bernard|
|Duncan-Smith, Iain||Jessel, Toby|
|Dunn, Bob||Johnson Smith, Sir Geoffrey|
|Durant, Sir Anthony||Jones, Gwilym (Cardiff N)|
|Dykes, Hugh||Jones, Robert B. (W Hertfdshr)|
|Eggar, Tim||Jopling, Rt Hon Michael|
|Elletson, Harold||Kellett-Bowman, Dame Elaine|
|Emery, Rt Hon Sir Peter||Key, Robert|
|Evans, Jonathan (Brecon)||King, Rt Hon Tom|
|Evans, Nigel (Ribble Valley)||Kirkhope, Timothy|
|Evans, Roger (Monmouth)||Knapman, Roger|
|Evennett, David||Knight, Mrs Angela (Erewash)|
|Faber, David||Knight, Greg (Derby N)|
|Fabricant, Michael||Knight, Dame Jill (Bir'm E'st'n)|
|Fenner, Dame Peggy||Knox, Sir David|
|Field, Barry (Isle Of Wight)||Kynoch, George (Kincardine)|
|Fishburn, Dudley||Lait, Mrs Jacqui|
|Forman, Nigel||Lamont, Rt Hon Norman|
|Forsyth, Michael (Stirling)||Lang, Rt Hon Ian|
|Fox, Dr Liam (Woodspring)||Lawrence, Sir Ivan|
|Fox, Sir Marcus (Shipley)||Legg, Barry|
|Freeman, Rt Hon Roger||Leigh, Edward|
|French, Douglas||Lennox-Boyd, Mark|
|Fry, Sir Peter||Lester, Jim (Broxtowe)|
|Gale, Roger||Lidington, David|
|Gallie, Phil||Lightbown, David|
|Gardiner, Sir George||Lilley, Rt Hon Peter|
|Garel-Jones, Rt Hon Tristan||Lloyd, Rt Hon Peter (Fareham)|
|Garnier, Edward||Lord, Michael|
|Gill, Christopher||Luff, Peter|
|Gillan, Cheryl||Lyell, Rt Hon Sir Nicholas|
|Macgregor, Rt Hon John||Shersby, Michael|
|Mackay, Andrew||Sims, Roger|
|Maclean, David||Skeet, Sir Trevor|
|McNair-Wilson, Sir Patrick||Smith, Sir Dudley (Warwick)|
|Madel, Sir David||Soames, Nicholas|
|Maitland, Lady Olga||Speed, Sir Keith|
|Malone, Gerald||Spencer, Sir Derek|
|Mans, Keith||Spicer, Michael (S Worcs)|
|Marland, Paul||Spink, Dr Robert|
|Marlow, Tony||Spring, Richard|
|Marshall, John (Hendon S)||Sproat, Iain|
|Marshall, Sir Michael (Arundel)||Squire, Robin (Hornchurch)|
|Martin, David (Portsmouth S)||Stanley, Rt Hon Sir John|
|Mates, Michael||Steen, Anthony|
|Mawhinney, Rt Hon Dr Brian||Stephen, Michael|
|Mellor, Rt Hon David||Stern, Michael|
|Merchant, Piers||Stewart, Allan|
|Mills, Iain||Streeter, Gary|
|Mitchell, Andrew (Gedling)||Sumberg, David|
|Mitchell, Sir David (Hants NW)||Sweeney, Walter|
|Moate, Sir Roger||Sykes, John|
|Monro, Sir Hector||Tapsell, Sir Peter|
|Montgomery, Sir Fergus||Taylor, Ian (Esher)|
|Moss, Malcolm||Taylor, John M. (Solihull)|
|Nelson, Anthony||Taylor, Sir Teddy (Southend, E)|
|Neubert, Sir Michael||Temple-Morris, Peter|
|Newton, Rt Hon Tony||Thomason, Roy|
|Nicholls, Patrick||Thompson, Sir Donald (C'er V)|
|Nicholson, David (Taunton)||Thompson, Patrick (Norwich N)|
|Nicholson, Emma (Devon West)||Thornton, Sir Malcolm|
|Norris, Steve||Thurnham, Peter|
|Onslow, Rt Hon Sir Cranley||Townend, John (Bridlington)|
|Oppenheim, Phillip||Townsend, Cyril D. (Bexl'yh'th)|
|Ottaway, Richard||Tracey, Richard|
|Page, Richard||Tredinnick, David|
|Paice, James||Trend, Michael|
|Patnick, Irvine||Trotter, Neville|
|Patten, Rt Hon John||Twinn, Dr Ian|
|Pattie, Rt Hon Sir Geoffrey||Vaughan, Sir Gerard|
|Pawsey, James||Viggers, Peter|
|Peacock, Mrs Elizabeth||Waldegrave, Rt Hon William|
|Pickles, Eric||Walden, George|
|Porter, Barry (Wirral S)||Walker, Bill (N Tayside)|
|Porter, David (Waveney)||Waller, Gary|
|Portillo, Rt Hon Michael||Ward, John|
|Rathbone, Tim||Wardle, Charles (Bexhill)|
|Renton, Rt Hon Tim||Waterson, Nigel|
|Richards, Rod||Watts, John|
|Riddick, Graham||Wells, Bowen|
|Rifkind, Rt Hon. Malcolm||Whitney, Ray|
|Robathan, Andrew||Whittingdale, John|
|Roberts, Rt Hon Sir Wyn||Widdecombe, Ann|
|Robertson, Raymond (Ab'd'n S)||Wiggin, Sir Jerry|
|Robinson, Mark (Somerton)||Wilkinson, John|
|Roe, Mrs Marion (Broxbourne)||Willetts, David|
|Rowe, Andrew (Mid Kent)||Wilshire, David|
|Rumbold, Rt Hon Dame Angela||Winterton, Mrs Ann (Congleton)|
|Ryder, Rt Hon Richard||Winterton, Nicholas (Macc'f'ld)|
|Sackville, Tom||Wolfson, Mark|
|Sainsbury, Rt Hon Tim||Wood, Timothy|
|Scott, Rt Hon Nicholas||Yeo, Tim|
|Shaw, David (Dover)||Young, Rt Hon Sir George|
|Shaw, Sir Giles (Pudsey)|
|Shephard, Rt Hon Gillian||Tellers For The Noes:|
|Shepherd, Colin (Hereford)||Mr. Sydney Chapman and Mr. Derek Conway.|
|Shepherd, Richard (Aldridge)|
|Division No. 191]||[10.15 pm|
|Ainsworth, Peter (East Surrey)||Durant, Sir Anthony|
|Aitken, Jonathan||Dykes, Hugh|
|Alexander, Richard||Eggar, Tim|
|Alison, Rt Hon Michael (Selby)||Elletson, Harold|
|Allason, Rupert (Torbay)||Emery, Rt Hon Sir Peter|
|Amess, David||Evans, Jonathan (Brecon)|
|Ancram, Michael||Evans, Nigel (Ribble Valley)|
|Arnold, Jacques (Gravesham)||Evans, Roger (Monmouth)|
|Arnold, Sir Thomas (Hazel Grv)||Evennett, David|
|Ashby, David||Faber, David|
|Aspinwall, Jack||Fabricant, Michael|
|Atkins, Robert||Fenner, Dame Peggy|
|Atkinson, David (Bour'mouth E)||Field, Barry (Isle of Wight)|
|Atkinson, Peter (Hexham)||Fishburn, Dudley|
|Baker, Rt Hon K. (Mole Valley)||Forman, Nigel|
|Baker, Nicholas (Dorset North)||Forsyth, Michael (Stirling)|
|Baldry, Tony||Fox, Dr Liam (Woodspring)|
|Banks, Matthew (Southport)||Fox, Sir Marcus (Shipley)|
|Banks, Robert (Harrogate)||Freeman, Rt Hon Roger|
|Bates, Michael||French, Douglas|
|Batiste, Spencer||Fry, Sir Peter|
|Bellingham, Henry||Gale, Roger|
|Bendall, Vivian||Gallie, Phil|
|Beresford, Sir Paul||Gardiner, Sir George|
|Biffen, Rt Hon John||Garel-Jones, Rt Hon Tristan|
|Body, Sir Richard||Garnier, Edward|
|Bonsor, Sir Nicholas||Gill, Christopher|
|Booth, Hartley||Gillan, Cheryl|
|Boswell, Tim||Goodlad, Rt Hon Alastair|
|Bottomley, Peter (Eltham)||Goodson-Wickes, Dr Charles|
|Bottomley, Rt Hon Virginia||Gorman, Mrs Teresa|
|Bowden, Andrew||Gorst, John|
|Bowis, John||Grant, Sir A. (Cambs SW)|
|Boyson, Rt Hon Sir Rhodes||Greenway, Harry (Ealing N)|
|Brandreth, Gyles||Greenway, John (Ryedale)|
|Brazier, Julian||Griffiths, Peter (Portsmouth, N)|
|Bright, Graham||Grylls, Sir Michael|
|Brown, M. (Brigg & Cl'thorpes)||Gummer, Rt Hon John Selwyn|
|Browning, Mrs. Angela||Hague, William|
|Bruce, Ian (S Dorset)||Hamilton, Rt Hon Sir Archie|
|Burns, Simon||Hamilton, Neil (Tatton)|
|Butcher, John||Hampson, Dr Keith|
|Butterfill, John||Hanley, Jeremy|
|Carlisle, John (Luton North)||Hannam, Sir John|
|Carlisle, Kenneth (Lincoln)||Harris, David|
|Carrington, Matthew||Haselhurst, Alan|
|Carttiss, Michael||Hawkins, Nick|
|Cash, William||Hawksley, Warren|
|Chapman, Sydney||Hayes, Jerry|
|Churchill, Mr||Heald, Oliver|
|Clappison, James||Heathcoat-Amory, David|
|Clark, Dr Michael (Rochford)||Hendry, Charles|
|Clarke, Rt Hon Kenneth (Ruclif)||Heseltine, Rt Hon Michael|
|Clifton-Brown, Geoffrey||Higgins, Rt Hon Sir Terence L.|
|Coe, Sebastian||Hill, James (Southampton Test)|
|Colvin, Michael||Hogg, Rt Hon Douglas (G'tham)|
|Congdon, David||Horam, John|
|Conway, Derek||Hordem, Rt Hon Sir Peter|
|Coombs, Anthony (Wyre For'st)||Howard, Rt Hon Michael|
|Coombs, Simon (Swindon)||Howarth, Alan (Strat'rd-on-A)|
|Cope, Rt Hon Sir John||Howell, Rt Hon David (G'dford)|
|Cormack, Patrick||Howell, Sir Ralph (N Norfolk)|
|Couchman, James||Hughes Robert G. (Harrow W)|
|Cran, James||Hunt, Rt Hon David (Wirral W)|
|Currie, Mrs Edwina (S D'by'ire)||Hunt, Sir John (Ravensbourne)|
|Curry, David (Skipton & Ripon)||Hunter, Andrew|
|Davies, Quentin (Stamford)||Hurd, Rt Hon Douglas|
|Davis, David (Boothferry)||Jack, Michael|
|Day, Stephen||Jackson, Robert (Wantage)|
|Deva, Nirj Joseph||Jenkin, Bernard|
|Devlin, Tim||Jessel, Toby|
|Dorrell, Stephen||Johnson Smith, Sir Geoffrey|
|Douglas-Hamilton, Lord James||Jones, Gwilym (Cardiff N)|
|Dover, Den||Jones, Robert B. (W Hertfdshr)|
|Duncan, Alan||Jopling, Rt Hon Michael|
|Duncan-Smith, Iain||Key, Robert|
|Dunn, Bob||King, Rt Hon Tom|
|Kirkhope, Timothy||Ryder, Rt Hon Richard|
|Knapman, Roger||Sackville, Tom|
|Knight, Mrs Angela (Erewash)||Sainsbury, Rt Hon Tim|
|Knight, Greg (Derby N)||Scott, Rt Hon Nicholas|
|Knight, Dame Jill (Bir'm E'st'n)||Shaw, David (Dover)|
|Knox, Sir David||Shaw, Sir Giles (Pudsey)|
|Kynoch, George (Kincardine)||Shephard, Rt Hon Gillian|
|Lait, Mrs Jacqui||Shepherd, Colin (Hereford)|
|Lamont, Rt Hon Norman||Shepherd, Richard (Aldridge)|
|Lang, Rt Hon Ian||Shersby, Michael|
|Lawrence, Sir Ivan||Sims, Roger|
|Legg, Barry||Skeet, Sir Trevor|
|Leigh, Edward||Smith, Sir Dudley (Warwick)|
|Lennox-Boyd, Mark||Soames, Nicholas|
|Lester, Jim (Broxtowe)||Speed, Sir Keith|
|Lidington, David||Spencer, Sir Derek|
|Lightbown, David||Spicer, Michael (S Worcs)|
|Lilley, Rt Hon Peter||Spink, Dr Robert|
|Lloyd, Rt Hon Peter (Fareham)||Spring, Richard|
|Lord, Michael||Sproat, Iain|
|Luff, Peter||Squire, Robin (Hornchurch)|
|Lyell, Rt Hon Sir Nicholas||Stanley, Rt Hon Sir John|
|MacKay, Andrew||Steen, Anthony|
|Maclean, David||Stephen, Michael|
|McNair-Wilson, Sir Patrick||Stern, Michael|
|Madel, Sir David||Streeter, Gary|
|Maitland, Lady Olga||Sumberg, David|
|Marland, Paul||Sweeney, Walter|
|Marshall, John (Hendon S)||Sykes, John|
|Marshall, Sir Michael (Arundel)||Tapsell, Sir Peter|
|Martin, David (Portsmouth S)||Taylor, Ian (Esher)|
|Mates, Michael||Taylor, John M. (Solihull)|
|Mawhinney, Rt Hon Dr Brian||Taylor, Sir Teddy (Southend, E)|
|Mellor, Rt Hon David||Temple-Morris, Peter|
|Merchant, Piers||Thomason, Roy|
|Mills, Iain||Thompson, Sir Donald (C'er V)|
|Mitchell, Sir David (Hants NW)||Thompson, Patrick (Norwich N)|
|Moate, Sir Roger||Thurnham, Peter|
|Monro, Sir Hector||Townend, John (Bridlington)|
|Montgomery, Sir Fergus||Townsend, Cyril D. (Bexl'yh'th)|
|Moss, Malcolm||Tracey, Richard|
|Nelson, Anthony||Tredinnick, David|
|Neubert, Sir Michael||Trend, Michael|
|Newton, Rt Hon Tony||Trotter, Neville|
|Nicholls, Patrick||Twinn, Dr Ian|
|Nicholson, David (Taunton)||Vaughan, Sir Gerard|
|Nicholson, Emma (Devon West)||Viggers, Peter|
|Norris, Steve||Waldegrave, Rt Hon William|
|Onslow, Rt Hon Sir Cranley||Walden, George|
|Oppenheim, Phillip||Walker, Bill (N Tayside)|
|Ottaway, Richard||Waller, Gary|
|Page, Richard||Ward, John|
|Paice, James||Wardle, Charles (Bexhill)|
|Patnick, Irvine||Waterson, Nigel|
|Patten, Rt Hon John||Watts, John|
|Pattie, Rt Hon Sir Geoffrey||Wells, Bowen|
|Pawsey, James||Whitney, Ray|
|Peacock, Mrs Elizabeth||Whittingdale, John|
|Pickles, Eric||Widdecombe, Ann|
|Porter, David (Waveney)||Wiggin, Sir Jerry|
|Portillo, Rt Hon Michael||Wilkinson, John|
|Rathbone, Tim||Willetts, David|
|Renton, Rt Hon Tim||Wilshire, David|
|Richards, Rod||Winterton, Mrs Ann (Congleton)|
|Riddick, Graham||Winterton, Nicholas (Macc'f'ld)|
|Rifkind, Rt Hon. Malcolm||Wolfson, Mark|
|Robathan, Andrew||Wood, Timothy|
|Roberts, Rt Hon Sir Wyn||Yeo, Tim|
|Robertson, Raymond (Ab'd'n S)||Young, Rt Hon Sir George|
|Robinson, Mark (Somerton)|
|Roe, Mrs Marion (Broxboume)||Tellers for the Ayes:|
|Rowe, Andrew (Mid Kent)||Mr. Andrew Mitchell and Mr. James Arbuthnot.|
|Rumbold, Rt Hon Dame Angela|
|Abbott, Ms Diane||Armstrong, Hilary|
|Adams, Mrs Irene||Austin-Walker, John|
|Ainsworth, Robert (Cov'try NE)||Banks, Tony (Newham NW)|
|Anderson, Donald (Swansea E)||Barnes, Harry|
|Anderson, Ms Janet (Ros'dale)||Barron, Kevin|
|Battle, John||Harvey, Nick|
|Bayley, Hugh||Henderson, Doug|
|Beckett, Rt Hon Margaret||Hill, Keith (Streatham)|
|Beith, Rt Hon A. J.||Hinchliffe, David|
|Benn, Rt Hon Tony||Hoey, Kate|
|Benton, Joe||Hogg, Norman (Cumbernauld)|
|Bermingham, Gerald||Home Robertson, John|
|Betts, Clive||Hoon, Geoffrey|
|Blair, Tony||Hoyle, Doug|
|Blunkett, David||Hughes, Kevin (Doncaster N)|
|Boateng, Paul||Hughes, Robert (Aberdeen N)|
|Brown, Gordon (Dunfermline E)||Hughes, Simon (Southwark)|
|Brown, N. (N'c'tle upon Tyne E)||Hutton, John|
|Bruce, Malcolm (Gordon)||Ingram, Adam|
|Burden, Richard||Jamieson, David|
|Byers, Stephen||Janner, Greville|
|Callaghan, Jim||Jones, Barry (Alyn and D'side)|
|Campbell, Menzies (Fife NE)||Jones, Ieuan Wyn (Ynys Môn)|
|Campbell, Ronnie (Blyth V)||Jones, Lynne (B'ham S O)|
|Campbell-Savours, D. N.||Jones, Martyn (Clwyd, SW)|
|Canavan, Dennis||Kaufman, Rt Hon Gerald|
|Chisholm, Malcolm||Keen, Alan|
|Clapham, Michael||Kinnock, Rt Hon Neil (Islwyn)|
|Clark, Dr David (South Shields)||Lewis, Terry|
|Clarke, Tom (Monklands W)||Litherland, Robert|
|Clelland, David||Llwyd, Elfyn|
|Clwyd, Mrs Ann||Loyden, Eddie|
|Coffey, Ann||Lynne, Ms Liz|
|Cohen, Harry||McAllion, John|
|Connarty, Michael||McAvoy, Thomas|
|Cook, Frank (Stockton N)||McCartney, Ian|
|Corbyn, Jeremy||Macdonald, Calum|
|Corston, Ms Jean||McFall, John|
|Cousins, Jim||McKelvey, William|
|Cryer, Bob||Mackinlay, Andrew|
|Cunningham, Jim (Covy SE)||McLeish, Henry|
|Cunningham, Rt Hon Dr John||McMaster, Gordon|
|Dafis, Cynog||Madden, Max|
|Dalyell, Tam||Maddock, Mrs Diana|
|Darling, Alistair||Mandelson, Peter|
|Davidson, Ian||Marshall, David (Shettleston)|
|Davies, Rt Hon Denzil (Llanelli)||Marshall, Jim (Leicester, S)|
|Davis, Terry (B'ham, H'dge H'l)||Martin, Michael J. (Springburn)|
|Denham, John||Martlew, Eric|
|Dewar, Donald||Maxton, John|
|Dixon, Don||Meacher, Michael|
|Dobson, Frank||Meale, Alan|
|Donohoe, Brian H.||Michael, Alun|
|Dowd, Jim||Michie, Bill (Sheffield Heeley)|
|Eagle, Ms Angela||Milburn, Alan|
|Eastham, Ken||Miller, Andrew|
|Enright, Derek||Mitchell, Austin (Gt Grimsby)|
|Etherington, Bill||Moonie, Dr Lewis|
|Fatchett, Derek||Morley, Elliot|
|Faulds, Andrew||Morris, Rt Hon A. (Wy'nshawe)|
|Field, Frank (Blrkenhead)||Morris, Rt Hon J. (Aberavon)|
|Fisher, Mark||Mullin, Chris|
|Foster, Rt Hon Derek||Oakes, Rt Hon Gordon|
|Fraser, John||O'Brien, Michael (N W'kshire)|
|Galloway, George||O'Hara, Edward|
|Gapes, Mike||Olner, William|
|Garrett, John||O'Neill, Martin|
|George, Bruce||Orme, Rt Hon Stanley|
|Gerrard, Neil||Pickthall, Colin|
|Gilbert, Rt Hon Dr John||Pike, Peter L.|
|Godman, Dr Norman A.||Pope, Greg|
|Golding, Mrs Llin||Powell, Ray (Ogmore)|
|Gordon, Mildred||Prentice, Ms Bridget (Lew'm E)|
|Graham, Thomas||Prentice, Gordon (Pendle)|
|Griffiths, Nigel (Edinburgh S)||Prescott, John|
|Griffiths, Win (Bridgend)||Quin, Ms Joyce|
|Gunnell, John||Radice, Giles|
|Hall, Mike||Randall, Stuart|
|Hanson, David||Raynsford, Nick|
|Robertson, George (Hamilton)||Taylor, Mrs Ann (Dewsbury)|
|Roche, Mrs. Barbara||Taylor, Matthew (Truro)|
|Rowlands, Ted||Thompson, Jack (Wansbeck)|
|Ruddock, Joan||Vaz, Keith|
|Salmond, Alex||Walker, Rt Hon Sir Harold|
|Sheerman, Barry||Wallace, James|
|Short, Clare||Wardell, Gareth (Gower)|
|Simpson, Alan||Wareing, Robert N|
|Skinner, Dennis||Watson, Mike|
|Smith, Andrew (Oxford E)||Wicks, Malcolm|
|Smith, C. (Isl'ton S & F'sbury)||Williams, Alan W (Carmarthen)|
|Smith, Rt Hon John (M'kl'ds E)||Wilson, Brian|
|Soley, Clive||Winnick, David|
|Spearing, Nigel||Wray, Jimmy|
|Stevenson, George||Tellers for the Noes:|
|Strang, Dr. Gavin||Mr. John Spellar and Mr. Eric Illsley.|
That this House welcomes the extension of individual choice of pension provision brought about by the Government's pension reforms, which has resulted in substantial increases in funded pension provision through both occupational and appropriate private pension schemes; welcomes the Government's steps to ensure the effective regulation of occupational pensions and to ensure that individuals have adequate information to make informed choices about provision for their retirement; and welcomes the measures being taken by the Securities and Investments Board, with Government support, significantly to improve investor protection.