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9.35 pm
Ms Hewitt: With the leave of the House, I should like to respond to our excellent debate. We have heard from at least two of the trustees of the parliamentary pension fund--my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart), and the right hon. Member for South Norfolk (Mr. MacGregor)--
Mr. MacGregor: My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) is a trustee.
Ms Hewitt: Forgive me; we have heard from three trustees--[Hon. Members: "Four."] We have heard from four trustees. It is encouraging to know that the pensions of right hon. and hon. Members are in such safe hands.
We have heard from several hon. Members on both sides of the House--including my hon. Friend the Member for Stafford (Mr. Kidney) and the hon. Member for Ryedale (Mr. Greenway)--who have extensive knowledge of the industry and the law. We have heard also from hon. Members--notably my hon. Friend the Member for Hemsworth (Mr. Trickett)--with deep constituency experience of the impact that personal pensions mis-selling has had on the lives of individuals.
Tomorrow, I shall, of course, read the full debate with interest, to ensure that I have not inadvertently overlooked any point. I shall also draw the debate to the attention of the regulators, just in case they do not look at it for themselves.
As several hon. Members have said, much common ground has been demonstrated in the debate, and I warmly welcome it. There is clear agreement on both sides of the House that there was mis-selling of personal pensions. There is agreement also on the scale of the mis-selling, and that the mis-selling was a scandal. Moreover, there is agreement that the situation must be put right: as a matter of justice to the individuals who have lost savings and future retirement income; to ensure confidence in the industry--including independent financial advisers, who, I assure the House, will have an extremely important role to play; and to provide thereby a sound basis for people's future pensions and savings.
I regret to say that I cannot agree with all the points that have been made in the debate. I was astonished to hear the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) suggest that the progress that has been made on the review is attributable to the previous Government's actions. Although I am in no way criticising my predecessor, Angela Knight--whom I look forward to meeting in her new role--I should draw the House's attention to the facts.
In March 1997, three months after the first deadline for priority cases had passed, only 15 per cent. of those cases had been resolved. The figure has now reached about 90 per cent. due to the tough action and the tough stance that my predecessor took and that I shall maintain. Hon. Members who welcome the progress that has been made with phase 1 must in all honesty give credit where it is due to the tough stance of the present Government, particularly my predecessor.
I regret the suggestion by the hon. Member for Harrogate and Knaresborough (Mr. Willis) that the Government's tough action had been motivated by political advancement or self-righteousness. I hope that I misunderstood him, but he certainly seemed to make that suggestion. The facts as I have given them make it very clear that the Government and my predecessor were motivated entirely by a determination to get the mis-selling scandal put right in the interests of consumers, who are our constituents. That is what we have done and will continue to do.
A succession of points have been made about independent financial advisers. Several hon. Members have complained about the burden that is being placed on IFAs. Let me make it clear that there is an issue for IFAs to face up to: according to the information provided to us that we have published, three of the firms that we have been monitoring--all IFAs--have missed their targets for completing all priority cases. If we look back at the original deadline of 31 December 1997, we see that more than 600 small IFAs failed to meet their first priority target.
Of the phase 1 cases, the FSA has estimated that, on average, an IFA will deal with 1.8 cases of personal pensions mis-selling and in phase 2 the average will be 2.1 cases. That is not a heavy burden. An IFA--an individual or a firm--who has given good advice and not mis-sold personal pensions has nothing to fear from the phase 2 review. Of course the burden is greater for those
who did not keep proper records of their business at the time or who failed to preserve such records--an action for which there is no excuse whatever. It was made clear when the extent of personal pensions mis-selling first came to light that records should be kept, and in many cases preserved indefinitely.
Many hon. Members have suggested that the review is retrospective. Let me deal with that again in some detail. As the hon. Member for Harrogate and Knaresborough admitted, the regulators' review guidance specifically states:
The FIMBRA conduct of business rules that were in force at the time state, for example, that a transaction should not take place unless the adviser can satisfy himself that
The hon. Members for Ryedale and for Bournemouth, West (Mr. Butterfill) mentioned professional indemnity insurance, on which there are serious issues. The regulators and the majority of the insurers reached an accord in January 1996 on the terms under which the review could proceed without negating IFAs' insurance. The FSA is confident that the design of phase 2 is consistent with that accord. The regulators see no case for a different approach for PI insured firms. That accord allowed firms to send revised letters and questionnaires to investors.
The hon. Member for Maldon and East Chelmsford asked whether I was willing to meet the IFA association. Of course I am. I look forward to doing so later this month and discussing the issues with the advisers face to face. However, the point that I made in opening the debate stands--the IFAs who are dragging their feet on phase 1 must take action to complete phase 1. The sooner they get on with phase 2, the better.
The right hon. Member for South Norfolk, the hon. Member for Bournemouth, West and others asked how the loss will be calculated, and suggested that it was wrong to calculate it on the basis of the situation in force at the time that the review is made. I underline the point that I made in opening the debate: whether a personal pension was mis-sold is judged by reference to the rules and standards in force at the time, but the extent of the loss, if any, must be assessed at the time that the review of the case is made.
Conservative Members shake their heads, but they should listen. The guidance on how that should be done is based on the independent advice of senior members
of the actuarial profession. The Government Actuary has confirmed that the methodology was appropriate, and that the actuarial assumptions fell within a range that actuaries would regard as acceptable for these purposes.
In all respects, the review process reflects the practice of the courts. If it did not, phase 2 investors who believed that they had suffered loss would have a redress in the courts that was not available to them under the regulatory action that we are ensuring. That would place a far greater burden of uncertainty on the IFAs and the firms responsible for mis-selling.
Although losses for phase 2 cases are generally lower than for the first priority cases, they are none the less widespread and material. Extensive research conducted by the FSA in deciding how phase 2 should be conducted estimates that there are nearly 1 million transfer cases, and where there is a loss it averages £4,000; 154,000 cases of opt-outs, with an average loss ranging from £3,500 to £7,250; and up to 700,000 cases of non-joiners, with an average loss in the range £2,250 to £12,000.
Those are significant sums. The idea put forward by one hon. Member, that £11 billion is a mere drop in the bucket compared with the total funds under management, will be of no comfort to younger investors who were ill advised and suffered loss as a result.
"It goes without saying that the question of whether a firm was at fault in compliance terms must be judged without the wisdom of hindsight."
So let us look at the rules that were in force at the time. They obliged a regulated firm to inform itself about the client's circumstances and objectives and to give suitable advice, to give its client adequate information so as to understand the nature and effect of the recommended transactions, to ensure that the client understood the risks, and to give clear and not misleading information.
"the client understands the extent to which he will be exposed to risk".
The rules also state quite unambiguously that the investment should suit the circumstances of the client and that the adviser should recommend the best product available for the client. The rules were and are perfectly clear in their meaning, and certainly would not extend to selling an unsuitable product to an unknowing investor.
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