Midland Bank yesterday became the latest firm to be publicly disgraced by financial regulator Imro in a humiliating indictment of the behaviour of its sales force between 1990 and 1992.
Imro said Midland had broken vital rules and left customers without a chance to make an informed decision on whether to leave company pensions for personal pensions which often represented much worse value.
In particular, Midland failed to warn its customers that figures used to persuade them to leave company schemes showed Midland's personal pensions in a much better light than a true comparison.
Sales people, keen to attract large commissions, failed to explain benefits under a company scheme, where retirement incomes go up with inflation, and compared them against flat-rate incomes from personal pensions.
Midland's pounds 52m provision, which stems from 5,600 questionable sales, is just 1 per cent of the estimated pounds 5bn the industry will have to pay out because of mis-sold personal pensions. The fine is less than half the pounds 325,000 slapped on rival high-street provider Lloyds TSB, the only other bank to be hit with a fine for mis-selling. Lloyds TSB has set aside pounds 165m to pay compensation.
But yesterday a spokesman admitted that Midland's pounds 52m provision may have to rise. The deadline for completion of 90 per cent of the most urgent cases, of which Midland has 1,130, is 31 December. After then, regulators are likely to broaden their definition of the number of cases which must be reviewed.
Gordon Brown's decision to abolish tax credits is also likely to have raised compensation levels. The amount of redress will have to rise to compensate for a fall in the investment returns which can be expected.
Tony Ashford, deputy managing director of Midland Personal Financial Services, said: "We believe that these costs are satisfactory at this moment in time as we have no information that [the Budget] will impact the number of customers affected."
But he added that regulators had not yet defined who should see their pension reviewed apart from the urgent cases of people who had retired, died, or transferred their pension above age 55. According to the Treasury, there are 597,000 of these urgent cases, of which Midland had just 1,130. A further 1.5 million non-urgent cases also have to be reviewed.
Of 23 firms investigated by Imro, which has now wrapped up its inquiries, Midland was one of only six fund managers to be publicly fined. However, a further 11 firms received a private warning. The Personal Investment Authority, which has taken over responsibility for the investigation, is preparing to discipline five firms. Its largest fine, for pounds 425,000 against DBS, was issued last month.Reuse content