Pension rules under fire

New rules aimed at compensating some 350,000 victims of the pension transfer scandal came under scathing attack yesterday from the Consumers' Association.

Those who were wrongly advised to switch their money out of their company pensions and into private schemes could find insurance companies refusing to reinstate them, the CA claimed.

The rules, issued by the Personal Investment Authority, the financial services watchdog, aim to tell independent financial advisers and insurance companies how to review investors' claims.

PIA members are expected to contact all their clients who were advised to opt out of occupational pensions and identify priority cases. Compensation for most priority cases - people who are dead, in retirement or close to it - must be in place by the end of this year.

In a separate document jointly issued yesterday by the PIA and IMRO, the fund managers' regulator, disciplinary action was promised against firms that gave bad advice.

Aggravating circumstances could include a firm ignoring rules or its senior management condoning poor sales practices. Imro and the PIA also outlined mitigating circumstances - for eample wherea firm has itself identified problemsand set about tackling them.

However, Neil Munro, the CA's deputy head of money group, said:

"We think that the PIA have watered down the original guidance given in October last year by the Securities and Investments Board (the City's leading regulator) when its report came out. There is a danger that some people who are entitled to compensation will not get it and those who do will not get enough."

Mr Munro singled out a clause in the PIA's guidance which allows insurance companies not to reinstate people into their former funds if the scheme trustees set to high a price for doing so. Insurers are then allowed to top up their policyholders' existing pensions to match the benefits formerly available in their old schemes.

Mr Munro claimed: "There is no way that a personal pension can match the guaranteed element of occupational pensions, particularly where employers pay contributions into them."

But his views were rejected by Geoff Lister, chief executive at Bradford & Bingley Building Society and also a member of the PIA board: "The rules on reinstatement are there because it is possible in some cases that an occupational scheme could charge a huge price for taking back someone. That would not be sensible for a company's policyholders who would have to pay the price."

Mr Lister added that his society, whose consultants give financial advice, welcomed the guidance notes: "All financial advisers should ensure that its procedures are followed.

"The society has already set aside £10m to compensate for any past errors and the process of identifying cases is already well under way."