I am a girl from Ayr, and on a night like this I cannot help but quote Burns. This is a short extract from a poem for all right hon. and hon. Scotch representatives in the House of Commons, and I am taking it to heart.
“Some o’ you nicely ken the laws,
To round the period, an’ pause,
An’ wi’ rhetoric clause on clause
To mak harangues;
Then echo thro’ Saint Stephen’s wa’s
Auld Scotland’s wrangs.”
I applied for this Adjournment debate having been approached by a number of former employees of the Anderson Mining Group who are still seeking justice following a mis-selling of pensions. In 1996, Godwins, the insurance company—now part of the Aon group—persuaded almost 400 employees of the Scottish-based company to transfer their excellent final salary pension scheme to a section 32 personal pension scheme, a move that would never be allowed today.
There was a suggestion at the time that the existing pension scheme was under threat due to a deficit. This proved not to be the case and, interestingly, none of the senior executives of the company transferred their pensions. In fact, the former personnel manager of the group has since written an open letter outlining the concerns that he raised with the senior management at the time. He was instructed by the new owners of the company not to interfere with the process.
In September 1997, Godwins confirmed that the Personal Investment Authority had found errors in its procedures—namely, that it did not confirm the contents of the discussion of the options available to its clients and did not write to confirm the discussion, that it contravened the rules of the regulator and, significantly, that the two members of its staff who provided the advice were no longer authorised to give advice to clients.
Godwins did not advise that it was recalculating the transfer values for retirement to age 60; it had used 65. Despite its assurances that its clients had no cause for concern, almost 50% of the claims to the Financial Ombudsman Service were successful. I understand that at least one claim resulted in compensation of around £200,000. The client checklist or agreement the employees then received with the letter was a three-page document, not the one-page document used at the time of transfer. That is when the employees realised that the independent financial advisers had, at the time of transfer, used only page 3, allowing them to reduce the time spent at each one-to-one interview to less than 10 minutes.
It was not until 2000 that some employees began to realise that the pensions they were to receive fell well short of the final salary scheme from which they had been removed. They formed a committee and started investigating various avenues, including requesting a transfer report from another well-known financial investment company, Jardine Lloyd Thompson, which confirmed that the calculations used by Godwins were wrong and would not yield the amount of pensions they were expecting based on what they had been told.
Jardine Lloyd Thompson told the employees that the ombudsman’s decision on mis-selling cases was usually based on two things: critical yield and the attitude to risk. This committee started examining critical yield—the investment rate of return required to provide the selected level of income. Although each individual’s original transfer report gave their critical yield for age 65, which they now know to be wrong, they were not given the new calculated figure at that time. Had they been, they would have noticed that the new figure was not high enough to return the same investment for a pension that would be paid out five years earlier, with five years less contributions and investment.
The employees calculated that the five-year age difference would require the critical yield to be 2% to 3% higher at a retiring age of 60, making the transfer unsafe, even under the guidelines enforced at the time. These calculations were confirmed by JLT and Scottish Mutual—the original company used by Godwins. The employees also traced four ex-employees who were given transfer reports for age 60 and 65, clearly showing a difference in the critical yields of 2% to 3%. Many employees launched a mis-selling claim to the ombudsman including all that information, believing that their claim was an open and shut case for everyone.
A number of these claims were based on that of my constituent, Mr John Aitken. The initial claims were mostly rejected. Within the rejection letters, claimants then saw, for the first time, their new critical yield calculations, which were well below what they believed to be correct—for example, a difference of only 0.4 of 1% rather than 2% to 3%.
In the meantime, Godwins had been taken over by Aon, which had previously refused individual requests for these figures. In subsequent communications with the ombudsman’s office, the employees learned that Aon had employed another company to do the recalculation of the critical yield—the original company used being Scottish Mutual. The employees contacted Scottish Mutual and asked whether the new critical yield figures could be correct. Its reply was, “Generally speaking, based on the length of time the investments were set up for, I believe that it is highly unlikely that a difference of five years—that is between aged 60 and 65—would only require an increase of yield of 0.3% to 0.4% to achieve the same pension.” That confirmed that Aon’s figures were wrong.
During each claim, the ombudsman requested that the employee complete the ombudsman’s multi-page document on attitude to risk. However, evaluating the claims, the ombudsman rejected that document, finding in favour of the simple answer given to the independent financial adviser’s question at the transfer meeting:
“What is your attitude to risk?”
During the 16 years in which the employees have fought this injustice, almost 200 claims to the ombudsman have been launched. Fortunately, almost 50% have been successful. That fact alone highlights a severe problem, as the average success rate is 3% to 4%. Having heard a summary of this fiasco of financial transfer, which has seriously affected almost 300 people, one can only conclude that the ombudsman’s office did not act with due diligence in dealing with those cases.
To confirm that conclusion, I wish to ask the following questions: why were the independent financial advisers allowed drastically to shorten the transfer interview, omitting much of the company’s checklist? Godwins made a serious error in the transfer report, so why were the employees not given the opportunity to review their transfer decision based on an updated transfer report, as that was a significant change? Having given ample information that the critical deal calculations were wrong, why did the ombudsman not check the figures or use an independent source? Why did the ombudsman not react to Aon’s suspicious decisions, which I have described? Why was the ombudsman’s multi-page attitude to risk analysis ignored in favour of Aon’s?
Although those questions were raised in the claims, none of those points was mentioned in the ombudsman’s rejection letters; they were simply ignored. Why did the almost 50% success rate of the complainants not flag up the fact that something was seriously wrong in the transfer? All those employees transferred on the same day to the same scheme plan, but only half the claims were upheld. My constituents firmly believe that the ombudsman did not act with due diligence in this case, and failed properly to investigate their claims. Employees who have lost out on millions of pounds in total of their hard-earned pensions must be compensated. Not only have they been mis-sold pensions, but they have been mistreated by a Government body that was set up to be fair and impartial.
As the Minister is aware, the Financial Ombudsman Service was set up to resolve individual cases and, indeed, it wrote to my constituent, Mr John Aitken, saying exactly that. It pointed out that if there was a systemic problem it would be a matter for the Financial Services Authority to consider. However, when the FSA was approached by my predecessor, Mr Frank Roy, it responded that it did not have the power to investigate individual disputes between consumers and regulated firms. At what point do individual complaints become a matter for the FSA? A previous complaint to the ombudsman was rejected, because too much time had elapsed, and the documentation was not available. That is not an acceptable response, as all documents that the ombudsman creates are archived, and the employees have sufficient documentation to prove every claim that I have made today.
I provided the Minister with documentation before the debate, and I am happy to provide anything further if necessary. These workers have fought the mis-selling for 16 years, and they will continue to do so until they get justice and compensation. This is a blatant case of mis-selling by an insurance company such that those who transferred their pensions did so in the belief that they would receive a pension comparable to the one they expected under the original scheme.
The Financial Ombudsman Service met Aon, but did not meet the individuals concerned, who were let down badly by the regulatory authorities, who appear to have taken no action against Godwins or Aon.
I could speak at much greater length, as I am sure the Minister is aware, but I have decided not to go into the minute detail because much of it is technical, and much of it I would have to spend some time trying to understand. However, I have set out what I believe is a very just case on behalf of my constituents.
Despite my Scottish grandmother, I will not be able to quote Burns quite as beautifully as Marion Fellows did tonight—[Interruption.] But I did have the haggis in the Tea Room. I congratulate the hon. Lady on securing the debate. She has expressed powerfully the issues surrounding the Strathclyde Mining Group pensions and the Financial Ombudsman Service.
As Economic Secretary, my key priority is to ensure that financial services firms are on the side of people who work hard, do the right thing and get on in life. Financial services should be there to help them achieve their aspirations at every stage of their lives, whether that is saving for their first home, taking out a mortgage, buying a car or, as in this case, saving and investing for their retirement. It is only by displaying and upholding the highest standards of behaviour that the financial services industry can regain the public trust it lost following the financial crisis.
I am therefore very sorry to hear about the problems that the hon. Lady’s constituents have been facing in this case. Understandably, given the importance we all attach to having savings to provide for our retirement, her constituents are very concerned about the issue. I would like to reassure her, and all other Members, that the Financial Ombudsman Service also takes the matter extremely seriously.
As the hon. Lady has set out, a number of Anderson Mining Group employees have raised concerns that they were not made aware in 1995 and 1996 that a transfer to a buy-out scheme could result in a loss of benefits, and that the advice provided used an assumed retirement age of 65, whereas benefits could have been taken from their occupational pension schemes at age 60. They have therefore complained to the Financial Ombudsman Service about the financial advice they received from Godwins Ltd between 1995 and 1996 to transfer their occupational pension schemes into buy-out policies. I understand that in many of these cases, but not all—she mentioned 50%— the ombudsman found in favour of the complainants.
I know that both the hon. Lady and her predecessor have been in contact with the Financial Ombudsman Service to ask it to re-examine some of the complaints that were not upheld. We all recognise that it is of the utmost importance that people are given suitable advice about their retirement savings and that, when things go wrong, they have access to a swift and low-cost means of redress. It is important to recognise that since these events occurred in the 1990s the Government have made changes to introduce a tough new financial regulator, the Financial Conduct Authority, to protect consumers and promote competition. We took that action because we were not prepared to tolerate the level of consumer detriment we have witnessed in the past.
The hon. Lady will understand that I am unable to comment on specific circumstances relating to the individual cases she has raised today, but I am able to explain the Financial Ombudsman Service model and what she can do when she is not happy with the outcome of that model. The model includes what routes there are to complain about the level of service in dealing with a complaint, as well as the further routes that may be available for seeking redress. The Financial Ombudsman Service was set up by Parliament in 2000—its duties were enshrined in law under the Financial Services and Markets Act 2000—to provide a proportionate, prompt and informal means of resolving disputes between a consumer and a financial service firm. It plays a valuable role in providing consumers with a swift and effective means of resolving disputes, and some of the hon. Lady’s constituents have benefited from that service.
Importantly, once the consumer accepts an ombudsman’s final decision, that decision becomes binding on the firm. As I have said, the Financial Ombudsman Service was specifically designed to provide a swift and relatively low-cost alternative to the courts, which is provided free of charge to consumers. There are many stages in its determination process, providing both parties the opportunities to make further representations before the complaint reaches the final stage of an ombudsman’s decision.
Adding another level of appeal would make the process costlier and lengthier, which could deter consumers from using the service and would generate additional costs for firms. However, it is possible for parties to challenge the way in which an ombudsman has reached a decision by means of judicial review. It is also possible for them to take complaints about the level of service provided to the independent assessor. When a consumer does not accept the ombudsman’s decision, that consumer's right to pursue redress through the courts remains unaffected.
The individuals who are affected in this particular case have concerns that need to be addressed. I shall be meeting the chief executive of the Financial Ombudsman Service later this week, and I will ask her to write to the hon. Lady responding to the concerns that she has rightly expressed this evening.
Let me thank the hon. Lady again for raising these issues, and stress that both the Government and the Financial Ombudsman Service understand their importance to her constituents.
Question put and agreed to.