Personal pensions were promoted because the Government believed in the importance of individual choice in providing for retirement and because the public spending burden of state pensions looked to be unsustainable in the 21st century.
The insurance industry leapt into action after personal pensions were introduced in July 1988. In 1989, nearly 3.4 million people contracted out of Serps through a personal pension; by last year the total had risen to 5.7 million. Premium income soared from pounds 6bn in 1989 to pounds 13bn last year.
It was a bonanza for pension sales forces, whose earnings were dominated by commissions of hundreds of pounds for each sale. This was the key factor that encouraged the unscrupulous to cut corners and foist unsuitable pensions on so many customers.
Many insurance companies were also badly managed, with poor management information. Coupled with lax training standards and supervision of sales forces, it was a recipe for disaster. Worse still, the regulators most directly concerned, Lautro and Fimbra - now replaced by the Personal Investment Authority - were struggling to implement the new investor protection system of the Financial Services Act, passed only two years before personal pensions came on the market.
It took them several years to wake up to what was happening, by which time it was too late. The Securities and Investments Board was eventually forced to take the initiative and set up the review body itself.
In the past 12 months, insurance companies and independent financial advisers have overhauled their training and supervision. But the horse has already bolted, and even a cleaned-up industry will take years to live down its bad image.Reuse content