Personal Pensions Mis-selling

Part of Bill Presented – in the House of Commons at 7:32 pm on 3rd November 1998.

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Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury) (EMU and the City) 7:32 pm, 3rd November 1998

It is somewhat intimidating to speak after two of the House's leading experts on pensions—the right hon. Member for South Norfolk (Mr. MacGregor) and the hon. Member for Birmingham, Edgbaston (Ms Stuart)—both of whom spoke eminently good sense in a non-doctrinal manner, leaving the rest of us with a rather reduced amount to say.

I should like to pursue the "who-who" question of who benefited from pensions mis-selling and who is now paying for it. It has been estimated that about £11 billion will have to be paid in compensation for pensions mis-selling, and it would be a useful exercise to trace where that £11 billion might have gone.

Four categories of people or institutions benefited from pensions mis-selling, the first of which—as the hon. Member for Grantham and Stamford (Mr. Davies) said in a couple of interventions—was composed of salesmen and executives. They benefited from mis-selling, but have fled the scene. Moreover, under the current regulation system, they were not liable for those transactions. They cannot be traced, and carry no personal liability for events.

The second set of beneficiaries comprises the companies, or some of them, that sold the pensions. They benefited from enhanced earnings, and therefore improved share prices and improved dividends. Nevertheless, there remains the fundamental question—which the hon. Member for Edgbaston pinpointed at the beginning of her speech—of where within companies the benefits accrued. Did they accrue to shareholders, or to current policyholders? Moreover, how should costs now be spread between those two groups? I shall return in a moment to the latter point.

Other groups of beneficiaries of pensions mis-selling have not been mentioned. One major group were employers generally. As employers did not have to make contributions, companies earned 5 to 12 per cent.—a large sum. Strangely, although we attach great stigma to those who gave bad or inadequate advice, it has never been suggested that employers in either the private or public sector were reprehensible for failing to warn employees of the cost of not maintaining their occupational pension scheme.

A fourth set of beneficiaries comprises occupational pensioners themselves. They have benefited from the fact that transfers out of occupational schemes were often made on very disadvantageous terms. Everyone with an occupational pension is therefore better off because of pensions mis-selling. They may not be aware of that benefit or feel a sense of guilt about it, and it is almost certainly impossible to trace them, but great income redistribution among pensioners has been occurring, for which there is no account.

The problem is that people in several of those categories can no longer be traced, so that the £11 billion cost will have to be paid by specific groups that can be identified and targeted. Although it is absolutely right that the Government should have aggressively pursued the compensation issue, and that pensioners should be compensated promptly when possible, as several hon. Members have already said, two specific categories have been forced to carry a disproportionate share of the costs.

One of those categories is independent financial advisers. Although I do not want to labour the point—my hon. Friend the Member for Harrogate and Knaresborough (Mr. Willis) has the largest number of IFAs of any constituency and will speak later in the debate about that issue, which has already been clearly stated—IFAs are, in some but not necessarily all cases, being punished not for mis-selling but for lack of foresight, which is the crucial distinction. The only appropriate basis for compensation would be what an occupational pension scheme would have produced for the pensioner when the private pension was sold. That principle of compensation is not being observed.

As the hon. Member for Edgbaston eloquently said, the other category of people with whom we are concerned is current policyholders. Ministers have said that, as a matter of principle, within companies, shareholders should be carrying the cost burden of pensions mis-selling. However, it is not clear how the matter is being pursued, or whether the burden is being carried appropriately. It would be helpful if the Minister dealt with the matter in his reply.

I do not want unduly to delay the House, but I conclude with a couple of forward-looking conclusions. Although it is easy to be wise and virtuous in hindsight, the key issue for us is to determine what lessons we have learnt from the whole sorry escapade.

The first lesson should be the danger of dogma, and that a "one size fits all" approach to pensions was not right. Although personal pensions—which many of us have—were a good advance, and are appropriate for those who are occupationally mobile, they do not fit everyone, just as owner-occupation is not the only style of housing. I hope that we, and especially the previous Government, have learnt a lesson about such an approach.