I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this important debate, the third that we have had on the matter. Next to me sits my hon. Friend the Member for Christchurch (Mr. Chope), who introduced a debate on the subject this year. I fear that we shall need to debate the matter again in the months and years ahead.
Pensions are a highly technical matter, but the problems surrounding Equitable Life and other pension schemes are human. The hon. Member for Edinburgh, North and Leith (Mr. Lazarowicz) rightly pointed out that a significant number of jobs are at stake in his constituency. My constituency contains the City of London, where the pensions and insurance industry has an important part to play. All hon. Members must have received letters on the subject of Equitable Life, which may not exactly have filled our mailbags but have come in a drip-drip approach over the past year or so. Several of my constituents are in desperate straits. That especially applies to elderly folk, from whom I have received a great number of impassioned pleas regarding the uncertainty about Equitable Life.
Like the hon. Member for Twickenham, I was especially concerned by recent announcements. We seem to have reached a crossroads. The fact that existing rather than simply future pensioners find that there are cuts of 30 per cent. in their annuities shows that we have reached a fateful point in the history of Equitable Life. It comes as no surprise that the business pages of last weekend’s newspapers talked about the stampede to the exit in Equitable Life. I shall return to the issue of confidence in a moment.
Last June, shortly after my election, I wrote an article in the national press, saying that the real fear was that the crisis in Equitable Life might be the first of many similar high-profile crises in the sector. Some issues may be specific to Equitable Life, but I fear that they may not be quite as unusual as we have been led to believe. The problem has all the ingredients for a major collapse in confidence in the savings industry.
The sorry tale of what happened in Equitable Life has been well documented, but I know that my hon. Friend the Member for Eddisbury (Mr. O’Brien) will go into some detail later, but before the Financial Services Authority took over responsibility for insurance industry regulation in January 1999, those duties rested with the Treasury and, before that time, with the DTI.
During the crucial period to the end of 1998, Equitable Life advertised and sold annuities without adequate reserves and without informing new savers of the vast pre-existing liabilities. That continued after January 1999, under the auspices, by that stage, of the FSA, until December 2000, when the House of Lords decided that Equitable was obliged to honour its guaranteed annuities in full. I have great sympathy with the Financial Secretary given the situation in which she and the Government find themselves, but they cannot wash their hands of responsibility for the fate of many of those with-profits policyholders who are now trapped.
The way forward is to end the obfuscation and delay that have been integral to the developments of the past 16 months, since the launch of the Penrose inquiry. The Treasury must now be open and honest about its role in the Equitable crisis. I have submitted many of the 253 outstanding ombudsman inquiry notifications, all of which have been stayed since August last year and the launch of the inquiry. I hope that the Financial Secretary will be able to suggest a timetable today. Her protestations in the national newspapers earlier in the year, when she said that Lord Penrose’s investigations should be conducted in the due course of time, will fail to inspire confidence, and that will have an effect well beyond the issue of Equitable Life. That is one of the main concerns: the problems in the pensions industry as a whole are crucial to the way in which we proceed. The issue goes beyond the issues that relate specifically to Equitable.
Several of my constituents who are with-profits annuitants put their case succinctly. First, the Government have forced pensioners to take out annuities by the age of 75, which is yet another reason why the Conservatives are keen to end the strict rule. Secondly, Equitable Life annuitants were unaware, in taking out their policies before December 1998, that there was any potential problem. Thirdly, to save the company those very annuitants, who are often relying on relatively small incomes to enable them to live happily in retirement, voted for the compromise agreement a year or so ago, thus depriving themselves of any right to sue for mis-selling. Yet those same annuitants are now unable to transfer to another provider, and their income is therefore reduced dramatically -perhaps even terminally. Many of them are worried sick. Realistically, they will be unable to build another pot of capital for their retirement. The sheer uncertainty over what is to come in the months and years ahead is the killer.
There is clearly a crisis of confidence in the entire pensions industry. I do not necessarily blame the present Government more than others for that although, if I dare talk in such terms, £5 billion raids in 1997 clearly did not help. However, the issue should be beyond party politics. What message will the Government now put out to young folk who might want to save for the future? Most people of my generation, and the Financial Secretary’s – she is at least two or three years younger than I am – take the view that there is little point in buying shares, given the depressed stock market, or investing at this stage in any sort of pension. In London the property market is overheated, and that is where most young and middle-aged folk are putting much of their money. There is a real reason for the Government to try to restore confidence.
The Government must grasp the nettle and take responsibility in relation to Equitable. There is little doubt that they will have to pick up the pieces in the end anyway, so why not do so now instead of delaying? The hon. Member for Twickenham rightly used as an analogy the secondary banking crisis in 1974, which required the Treasury to lead the way with a lifeboat-type rescue. My fear is that failure to act now will do great damage to the whole pensions and insurance sector, and that that damage could take a decade or more to rectify. There is little doubt that the Financial Services Authority lacks the authority shown by the Bank of England, for example, in its work almost three decades ago during the secondary banking crisis to which I referred. The Government now need to act in the national interest, because the problem extends well beyond the business of insurance and pensions, to ensure that we get the matter right.