The government has made much of its determination to ensure full compensation for those who have been mis-sold pensions. But it has been rather more coy on who is going to pay for this – especially in shareholder-owned companies as opposed to mutuals.
Estimates of the eventual total cost of putting things right – that is, ensuring people are no worse off than if they had never been induced to give up their occupational pension in the first place – range from the top end of the government’s estimate of #10bn to #11bn to the assessment of an independent firm of actuaries that it could top #22bn.
You are talking telephone numbers affecting millions of people. It matters very much who pays. I was astonished to be told by economic secretary Helen Liddell that it was up to the companies to propose how they were going to settle the cost.
Much discussion centres around ‘policyholders’ reasonable expectations’.
As a policyholder myself, my reasonable expectation is that an insurance company to which I entrust my money will manage it wisely and that, although investments can go down as well as up, they will share their success and failure with me on an equally balanced basis.
Most companies withhold a certain proportion of policyholders’ profits to cover for unexpected events such as wild market fluctuations. These have been described, erroneously in my view, as ‘orphan’ funds. In reality, it seems clear to me that they are policyholders’ funds.
If directors have been authorising the mis-selling of pensions then shareholders should be held responsible for the consequences and not the policyholders.
Yet a number of companies are seeking permission from the Treasury to transfer these funds from policyholders to shareholders.
It does not require an actuarial genius to see if the cost of mis-selling is taken from policyholders’ funds then this will reduce the amount available for future bonuses – the policyholders’ reasonable expectations.
Shareholders are entitled to a dividend on the growth of the company.
They should not be entitled to raid the profits of the policyholders. This must be clearly defined in law.
Malcolm Bruce is MP for Gordon and the Treasury spokesman for the Liberal Democrats.
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