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8.44 pm
Mrs. Jacqui Lait (Beckenham): There has been remarkable consensus and great expertise displayed in the debate so far. I plan to continue the former, but I doubt that I can add to the latter. There is not a great deal left to say about this subject, and I sympathise with the hon. Member for Twickenham (Dr. Cable) who commented much earlier in the debate that all the issues had been covered.
However, in talking about the problems that have arisen as a result of the changes introduced by the Conservative Government, it is important to dwell briefly on the impetus for that change. I was one of those who pushed very hard to open the whole pensions issue. Pension transfer values were diabolical: if one's career was not entirely in one company, one was ripped off completely when it came to pensions transfers. We needed to open up the market so that people could provide for themselves. In fact, more and more people were becoming financially astute and wished to provide for themselves.
I think that the impetus for change in the pensions area has benefited this country--as is recognised by the £600 billion under management, which, as has been pointed out, is the largest sum by a long chalk in the whole European Union. It will cushion us against potential problems that could arise as a result of the greying of the population--which was another impetus for changing the whole pensions regime.
As so much money has gone into the pensions industry in the form of savings, I must take issue with the hon. Member for Stafford (Mr. Kidney), who described the past 10 years as a "decade of disaster". Eleven billion
pounds is a huge sum, but I think that we should putthe matter in perspective and compare it with the £600 billion that is under management.
Angela Knight, the Economic Secretary to the Treasury under the previous Government, was a very valuable member of the House and she did much to encourage financial companies to focus on and address the pensions mis-selling issue. I am concerned that, when Labour came to government, it raised the temperature by criticising the very companies that it is looking to to provide second pensions and ISA products. That sort of aggressive relationship with the private financial sector does not help when the Government are clearly relying on it to supply new products.
As many hon. Members have said, it is recognised that there are problems in the pensions area. I shall not repeat them all, other than to say that that problem is recognised in the biggest and the smallest companies. An insurance broker in Beckenham, who briefed me about the problem as it relates to his company, acknowledged in a letter to me that files
As many hon. Members have said, the bone of contention lies with phase 2. I am struck by the role that hindsight has played in this debate. It is clear, with hindsight, that there should have been a much tighter regulatory regime and that we should have examined the financing arrangements much more closely. Hindsight is a wonderful thing, but the problem is that we are dealing with the real world, real people and the real circumstances that prevailed when they bought their pensions.
The Economic Secretary, if I understood her correctly, said that the regulatory regime under the Financial Services Act 1986 was not what it should have been, which is precisely the point that many of us are making. We cannot expect people such as independent financial advisers, who, while funded to carry on their business, do not have access to the huge reserves that the large companies have, to be able to guess what hindsight would tell them about the regulatory regime that they needed to act under when they were selling their policies. I was interested in a simple statement that the Independent Financial Advisers Association made before the Treasury Select Committee when it gave evidence on 25 June. It said:
Beckenham is not known as a hive of commercial or industrial activity. However, I have quoted one insurance broker and I have been impressed by the number of IFAs who have come to me with great feeling about the issue that we are debating. I shall outline one company's problem. Its senior partner is its greatest earnings getter. The company specialises in employee and executive benefits. The partner has a client list of blue chip companies, many of which are in the new industries whose age profile is of necessity young. He has done no business getting for the past two years because he has been engaged entirely on the review. In addition, the company has had to hire outside consultants to a current cost of £80,000.
When phase 2 comes through and if the current annuity rates apply to the pensions that the senior partner's company has sold to younger people, the cost could be £1 million, and that equals bankruptcy. It is an IFA with no complaints against it.
It cannot make economic sense for a senior partner not to be getting any business. That is why I add my plea to those made by all those who have asked the Economic Secretary and the Treasury to look again at the regime for phase 2. No one is asking for it to be withdrawn. We accept that there is mis-selling, and if there is mis-selling, compensation is due. However, we need to ensure that those IFAs which have done a good job and which complied in their understanding of what the regulations were at the time should be able to continue in business.
Mr. John Greenway (Ryedale):
I again remind the House of my many interests in these matters. I shall painstakingly go through them because there is a point to be made on each one. I have worked in the insurance industry since 1970. I am still an elected member of the Insurance Brokers Registration Council. The council has had to give up its status as an authorised body under the Financial Services Act 1986. For reasons which the Minister knows, the council's future is in dispute. One of the factors in having to give up its status was the complexity of the work involved in carrying out the phase 2 review and the resources required if it was to be done properly. That is a telling point for the House to consider. If one of the authorised bodies feels that the cost of carrying out the review is so great that it has to hand the job over to the Financial Services Authority, no wonder small independent financial advisers feel constrained by the potential cost.
I am a director of a major insurance broker and independent financial adviser, which purchased the company which I started in 1973. It did so three or four years ago. Sadly, I owned very little of it by then. Its headquarters are in Harrogate, the constituency of the hon. Member for Harrogate and Knaresborough (Mr. Willis).
I think that it would be helpful to share with the House what has happened to us. We were fined £4,000 along with most other IFAs because of the delay on phase 1. We gave all our phase 1 cases--all 39--to an out-sourcing actuarial service, which proceeded to do nothing with them because all its efforts involved sorting out the insurers. We brought them back in-house and we have put them all right. We expect to be in order by the end of this year. We think that there are possibly eight or nine cases to compensate.
We think that we have about 150 transfer cases in phase 2, the majority of which are compliant. Until we examine them all in detail, we cannot be sure. We have 7,000 IFA clients, 2,700 personal pension policy holders and only two cases where there was an opt-out to buy a personal pension. I cannot say how typical we are but I suspect that we are typical of most of the really professional IFA firms. The sadness is that in some elements of the IFA sector--as in the employed sector, to which the hon. Member for Hemsworth (Mr. Trickett) referred--a great deal was left to be desired on standards of training, competence and the quality of advice.
The industry has put much of that behind it. To be authorised now, one must be professionally qualified, and the industry can be proud of that. Those who are left, particularly in the IFA sector, to clear up what needs to be done have put themselves through the professional mill. They have achieved their financial planning certificate. A great many have gone further and achieved the advanced FPC and are members of the Society of Financial Advisers. We are dealing now with an independent financial advisory industry that is considerably more professional and committed than the whole industry was when much of the mis-selling that we are discussing took place.
In an earlier intervention, I declared my interest as a chairman of the Federation of Insurance and Investment Intermediary Associations, of which the IFAA is a member. That is an unpaid post, but I am a paid adviser to the Institute of Insurance Brokers, for which mis-selling is not a huge problem. As the Economic Secretary knows, we have much greater concerns about dealing with the future of the Insurance Brokers Registration Council, and I hope to talk to her soon about that.
I want to correct two points that the Economic Secretary made earlier. If there has been misapprehension on her part or misunderstanding of what the IFAA has been trying to do, this is the opportunity to put that right. We are not saying that there is not a problem to resolve in phase 2--clearly there is a problem. We are asking the hon. Lady to recognise that the problem in phase 2 is fundamentally different from that in phase 1.
Phase 1 will be completed by Christmas with, perhaps, a few exceptions in the IFA networks. I ask the hon. Lady to be kind and understanding to them. I do not belong to an IFA network and I have no brief for them, but I know that they have spent a great deal of money on phase 1.
The problem is that the on-going cost of regulation and remaining in business means that many smaller IFAs have joined networks to stay in business. The chief executive of the Personal Investment Authority, Colette Bowe, encouraged many to do so. Much of the mis-selling that the networks are now dealing with occurred before the
firms were part of the networks, which is why there has been a delay. I hope that there will not be more unnecessary fines because they simply deplete already hard-pressed resources.
"must be reviewed and where losses have occurred as a result of advice given not to join occupational pension schemes then redress should be available. Likewise where members have been opted out of their employer scheme and losses occurred as a result redress should be given."
There is agreement throughout the industry that the matter must be dealt with, and I am pleased that phase 1 will be completed, in essence, by the end of the year.
"The review is fast becoming a process to ensure no one loses money, in any circumstances, rather than a review of mis-selling."
When the Economic Secretary called in aid the Association of British Insurers rather than the IFA Association, it was interesting to note that the ABI, in much more restrained language, made exactly the same point in its briefing to Members for this debate. The association states that phase 2 will be completed when
"various factors such as the complexity of loss assessment, its interaction with the availability of actuarial resources and the degree of accuracy required"
are understood. If the ABI is making that point, the IFA Association, which is making the same point in a much more clear and direct way, deserves some sympathy.
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