The Australian-controlled insurer runs 600,000 life and pensions policies in the UK with pounds 3bn of funds under management and has a marketing deal with the NAS/UWT teaching union. It is also bidding to run the privatised Teachers Pensions Agency.
Colonial has been in hot water before: it was fined pounds 130,000 in March1993 over training and supervision failures.
Alan Brener, the PIA's head of monitoring, said he was looking at the firm afresh, but the regulator came under fire this weekend for failing to act sooner. Its predecessor body, Lautro, was first told about the latest claims two years ago.
Mr Brener, however, denied dragging his feet. "The allegations are that the company didn't do what it should have done and records were altered," he said. "We are making serious enquiries ... there are assurances we won't let this one rest until we get to the bottom of it."
The row comes as Parliament is set to debate a Bill this Friday to protect staff who blow the whistle on misconduct.
The fresh allegations against Colonial started with a former manager, Peter Smith, who blew the whistle on malpractice in 1993 at its Lincoln office. Two managers were sacked for allowing trainees to sell policies alone without proper training and for falsifying training records.
Colonial's general manager, Rob Garnsworthy, says other dismissals followed, but after its own review by accountants KPMG in 1994 it was given a clean bill of health by Lautro. It was authorised by the PIA early last year.
"We have been very open with the PIA from day one," he said. "There is absolutely and utterly no evidence of mis-selling."
However, four more ex-employees contacted by the Independent on Sunday allege malpractice at several of the firm's offices up to the start of 1995, by which time each had resigned.
q Harvey Mijangos, a trainee at Wolverhampton, who left in August 1994, said he sold policies alone without passing any of the required competence tests. "The whole thing was managed as a bit of a joke. They were only interested in getting as many people out as possible," he said.
q Maurice Timbrell, another trainee at Wolverhampton and Droitwich, also passed no tests in 1994 and said managers often gave prompts to candidates during exams.
q Roger Snell, a Lincoln trainee, said malpractice was still happening there in January 1995 and that he was contacted neither by regulators nor KPMG. "I am prepared to stand in a witness box and give evidence against Colonial Mutual," he added.
q Bob Edwards, a former trainee at Gateshead, claimed malpractice there went back to 1990. He recalled one occasion when, without proper training, he was instructed to get a statement from a young teacher, saying she was considering leaving teaching and wanted a private pension. Her opt- out from the teacher's superannuation scheme left her disadvantaged, he said.
Two of the employees are still in dispute with Colonial over debts it claims for return of salary and commissions and complain of heavy-handed threats.
Mr Smith, whose home was repossessed by Colonial Mutual three weeks ago, is currently suing the company in the High Court for personal injury caused by alleged victimisation.
"Lautro knew from February 1994. The issue has been going for such a long time and it's unclear what the PIA has done, if anything, at this stage," said Guy Dehn, a director of pressure group Public Concern at Work, which has promoted the whistleblower's bill.
"It must call into doubt the efficacy of self-regulation."
The allegations come at a time when the UK pensions industry faces a bill of more than pounds 2bn in compensation to people who were mis-sold policies.Reuse content