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7.13 p.m.

Lord Jenkin of Roding: My Lords, I have pondered carefully as to whether it would be appropriate for me to take part in the debate. I have to declare an interest immediately. I am chairman of a major mutual insurance company which has sold a large number of pensions. Whether it deserves the obloquies which have been thrown at the industry by the noble Lord remains to be seen. Happily, I believe that the company that I chair has always had extremely high standards.

I have no doubt that we shall discover some cases in which compensation will have to be paid. However, I believe that I shall be able to convince your Lordships that in his speech the noble Lord, Lord Haskel, has fallen into the trap of a great many other commentators who have chosen to jump on the bandwagon of bashing the life insurance industry, of extracting partial information from reports which were leaked before they were completed and of drawing conclusions which will turn out to bear no resemblance to the facts.

Perhaps I may develop my argument and justify my contentions. I agree with the noble Lord in some of what he said. It is very important that, as he put it, we keep standards high. I would have hoped that he would have recognised that standards in the selling of insurance products, including pensions, have increased dramatically in the past five years. I have no hesitation whatever in saying that the system of regulation and monitoring of companies which now exists has played a large part in that. We welcome it. I am not sure that the system is right yet, and if I have time before the clock catches up with me I may be able to offer some possible suggestions.

I also agree with the noble Lord about the disclosure of commission. About four years ago I minuted my chief executive indicating that I thought that the office should be prepared for a system of full commission disclosure. Most of the industry did not accept that and it was resisted. It is now coming, and all the preparations are being made.

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Perhaps the most hopeful sign for the future is that the chairman of the SIB, Andrew Large, is firmly of the view that if we have full commission disclosure it may be possible to dispense with much of the enormously bureaucratic and costly regulation which the industry currently undergoes. When he told me that I said "I will believe that when I see it". However, I hope that the noble Lord, Lord Haskel, is right and that that will make a considerable difference.

The last speech that I made as Secretary of State for Social Services, in July 1981, grappled with the problem of the dismal treatment of early leavers from occupational pension schemes. I warned the pensions and life insurance industry then that unless it dealt with that problem the Government would be forced not only to provide a compulsory measure of protection but to introduce personal pensions. Very little was done about the plight of the early leavers—those who changed jobs regularly during their careers. They end up with substantially reduced pensions. Of course, it is in the interests of a pension scheme to make sure that there are as many people as possible with frozen benefits because that means more for everybody else, and bully for the pension fund manager.

The noble Lord, Lord Haskel, described what happened in 1988. That was six years ago and a great deal has changed since then. The Government recognised that one of the ways to protect early leavers was to allow people to buy money purchase personal pensions rather than surrendering the interest in final salary schemes. That change coincided with the implementation of the Financial Services Act.

The changes in the regulation of the pensions market were at that time regarded favourably. As a result of the advertising which the Government undertook, there was considerable interest among the public in the new portable products. All life offices provided those products, and many independent intermediaries and tied sales forces made a particular sales effort.

Because at that stage regulation under the Financial Services Act was still in its infancy, many of those early sales, it is now widely recognised, were made on the basis of inadequate fact finding. Moreover, it should have been clear—and to some it certainly was clear—that it was unlikely to be good advice for an individual to opt out of a good quality occupational pension scheme and simply leave their pension behind. Schemes such as the teachers' scheme and the National Health Service scheme have been instanced.

However, to have transferred into a personal pension scheme may well have been appropriate. After all, in the economic climate of 1988-89 to ask a person whether he or she was likely to stay in the same job for the whole of his or her career was to invite the answer, "Of course not". The economy was in a state of growth and development. People were moving. There was enormous change. Very few people imagined that they would stay in the same job. In those circumstances, to transfer out of an occupational pension scheme and pay the money into a personal pension plan, in some cases with employers continuing to make contributions to that plan, could very well have been very good advice indeed. At the same time, when people saw the appalling results of

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the Maxwell débacle, and when it appeared that perhaps the security of occupational pension funds was not so sound as people had thought, it added to the problem.

The noble Lord, Lord Haskel, did not make this point; or if he did so, I hope that he will forgive my having missed it. Where is there mention of responsibility for that situation on those who promoted occupational pension schemes? Of those who said, "I'm leaving; I'm opting out of the scheme," how many were asked, "Wait a minute. Are you really doing the right thing"? Of course they were not, because it suits the actuarial balance of a pension fund to have people opt out. It is a matter to which the Government need to pay attention. As well as being chairman of an insurance company, I am trustee of an occupational pension scheme in another area. I am happy to say that in such circumstances the managers warned people, saying, "You realise what you're leaving behind". We had very few opt-outs from our scheme.

However, the industry remains pretty certain that a relatively small proportion of the people who bought personal pensions were given advice which was flawed, where pensions should not have been sold. As I indicated at the beginning of my remarks, regrettably, owing to a widespread misinterpretation of the original KPMG Peat Marwick report to the SIB, which was the subject of a highly coloured leak before it was ready for publication—the SIB did its best to indicate what the story was—it is widely believed that 90 per cent. of all the people who were sold personal pensions will be entitled to compensation. I suspect that that figure is at the back of the mind of the noble Lord, Lord Haskel: that millions of pensions were sold and that 90 per cent. of the people who bought them will be entitled to compensation.

That belief has been fanned by the press which is ever happy to find a jolly good whip with which to beat one of our institutions. However, one must make some points clearly. First, personal pensions are the right product for many investors. Many, especially the self-employed and those who are changing employment, will continue to find the flexibility of a personal pension the right answer. That is fully acknowledged by the SIB in its report.

Secondly—I shall be interested to hear the remarks of the noble Lord, Lord Peston—all political parties in the UK have long accepted the principle of private pension provision as a means of providing incomes in retirement. The noble Lord, Lord Haskel, referred to the value of the national insurance pension. It is essential that there is a great deal more private provision for pension for old age, and no doubt also for sickness through permanent health insurance and other methods, if we are to float people off dependence on social security. During my noble friend's Statement on social security upratings much was said about dependency. One of the best ways to reduce dependency is for people to make better provision for themselves. I should have thought that that was common ground for us all.

Thirdly, there has been no criticism whatever of personal pensions as a product. What has been criticised is the fact that some people received no advice, or wrong advice, and took out a personal pension when it

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was the wrong thing to do. Therefore, I ask the same question that the noble Lord, Lord Haskel asked: what needs to be done?

First, regulators and firms must seek to speed up the review of the many thousands of cases which they will have to examine in order to identify those where advice was clearly misconceived. I know what a long, time consuming and expensive business that will be. However, we have no option but to do it. To put the matter into context, in my company —having sold perhaps well over 100,000 pensions, many of them involving transfers or opt-outs—we have probably had fewer than 100 direct complaints. We are not expecting many —certainly very few from those schemes sold by our own sales force. We do not yet know about those sold through intermediaries. I shall come to that in a moment.

Secondly, before any compensation can be paid we must have the promised (it is a lovely phrase) prescriptive guidance from the SIB. It will not be an easy task to assess the compensation for those cases in which a pension was mis-sold. It can be stated in principle that the pensioner should be put into the position in which he would have been if the pension scheme had not been so sold. However, there is such a huge range of cases that it will be a difficult task. The sooner we have that guidance, the better. I understand why the matter is taking a little time; it is complicated.

Thirdly, it must be made clear to the public—it has been made clear by SIB and I have had it confirmed by the Government—that the standards of selling which have to be taken into account in deciding whether or not adequate advice was given are the standards which were in force at the time when the policy was sold. That is in the SIB paper. It is accepted by the Government but it is certainly not yet understood by the public. They are judging what they did five or six years ago by the very much higher standards which are now applied by the industry when selling.

Fourthly, and leading on from that, the authorities must move to lower expectations. People believe that hundreds of thousands of individuals are involved. It is unlikely to turn out to be that number.

Fifthly, we must make it clear that there is no redress for people who simply change their minds. They may have believed that they were going to change their jobs and that their decision was right. But come the recession, they did not change their jobs. Those individuals cannot just change their minds. They must take responsibility for their own decisions. There should be no compensation in the absence of evidence of mis-selling.

I hope that the noble Lord, Lord Haskel, agrees with me on this point. Every effort must be made to restore public confidence in the industry. There has been a significant fall of new premium income; and that must be reversed. We all have to work at the issue. The

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industry is thoroughly aware of its responsibilities. I beg people to recognise that expectations have been wildly exaggerated and must be reduced.


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