Pru to avoid pension fines

The Prudential will escape any fines over alleged mis-selling of personal pensions even though rival companies in a similar position face the possibility of financial penalties imposed by industry regulators.

The Pru and 23 other leading insurance companies were cited recently by Treasury Minister Helen Liddell in the "name and shame" list of companies that she criticised for slowness in resolving cases of suspected mis-selling.

But with regulators beginning to hand out financial penalties, it emerges that the company that is the UK's largest insurer cannot be fined at all if the authorities decide that punishment as well as mere restitution is required. This is because the Pru is regulated by the Securities & Investments Board which, a spokeswoman confirmed, has no statutory powers to impose fines for breaches of the Financial Services Act.

All the other 23 companies on the list are regulated by the Personal Investment Authority, which, like other self-regulatory bodies theoretically junior to SIB, does have power to fine its members.

Between 1988 and 1994 an estimated 570,000 people were sold pounds 3bn worth of personal pensions when they might have been far better off staying in their existing occupational pension schemes. After what Mrs Liddell clearly regards as foot-dragging, less than 13,000 cases had been resolved by May with companies agreeing to pay out pounds 102m in agreed restitution.

According to the list, the Prudential had resolved only 5 per cent of cases under review. Legal & General and Norwich Union has resolved 6 per cent, Royal & Sun Alliance 8 per cent and Guardian Royal Exchange 10 per cent.

"There may be cases where we have given bad advice, but we don't think we have behaved in any way deserving of any fines," said Prudential spokesman Mike Davies, adding he did not believe regulators would fine insurers for mis-selling.

There is no limit on the fines the PIA can levy on big insurers. Two relatively small firms were recently fined pounds 70,000 and pounds 75,000 suggesting that larger insurers may face much heavier fines in future.

The ability of the Prudential to avoid fines results from the decision by its former chief executive Mick Newmarch to opt to be directly regulated by the SIB instead of the PIA when the latter was set up in 1994. Coincidentally it was that year that the SIB and PIA finally began to take action over the mis-selling scandal.

Meanwhile, there are signs that the PIA was upset by Mrs Liddell's seemingly robust naming and shaming exercise. The PIA itself published exactly the same list of 24 insurance companies in May setting out deadlines for the companies to settle outstanding cases.

Two months later, after hauling in top insurers for a tongue lashing the Treasury Minister published her name and shame list providing additional information on the small number of cases each individual company had resolved. The PIA had not published these statistics in its list.

But despite her highly public get-tough stance, Mrs Liddell did not change the PIA-imposed deadlines.

"We were unable to publish the figures because this could be prejudicial to any disciplinary cases we might bring in future," said a PIA spokeswoman, pointing out that it was the Treasury's decision to release the figures. "We can't say what effect this might have on any future action."