LEADING ARTICLE:Only law will protect pensions

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The Independent Online
Pensions and insurance companies like advertising images which feature rocks, umbrellas and reassuring faces. Unfortunately, you can't trust them. That is the message behind the huge compensation package due to be announced this week for those who were in effect conned into taking out unsuitable pension plans.

The Personal Investment Authority - the financial services' self-regulatory watchdog - will set out terms for making good the mis-selling of policies by commission-hungry sales staff. Offending companies expect the exercise to cost them £3bn.

This may sound like just another tale of wrongs done in the greedy Eighties being undone in the more sober Nineties. Once compensation has been distributed, it might be thought that the affair should best be forgotten.

In fact, the matter is more serious. The compensation deal does not atone for all past sins. The PIA scheme leaves unresolved the injustice done to many of those people who were persuaded to leave the state earnings- related pension scheme (Serps) and take out personal pension plans. Up to 2 million of them, on low wages, are now thought to be worse off after choosing to opt out of Serps. This scandal remains unaddressed.

The long-term mis-selling of pension plans has also severely undermined public confidence in an industry that now offers the only real means for most people to secure their financial futures.

Realistically, there can be no return to the days when most people of working age expected to rely on the state and perhaps an occupational pension during retirement. Demography dictates that the welfare state's support for retirees will gradually shrink. And as people change jobs more frequently or are self-employed, job-based pensions no longer make sense for those needing a portable means of saving.

So it is more vital than ever that Britain should have a rational fiscal and policy framework in which the private pensions sector can thrive. The industry deserves, therefore, to be thrashed thrice and thrashed again for failing to foster a safe environment. Even now the Prudential refuses to join the Personal Investment Authority, whose job is to enforce high standards within the industry.

It is becoming more evident by the day that statutory regulation of the personal financial services sector is necessary. It is equally certain that a government which has had its fingers so badly burnt is unlikely to take the necessary action. Given the disunity within the industry, ministers should take immediate steps to turn the PIA into a statutory authority to regulate the sale of all personal financial products. This would face parliament with another complex financial services Bill, but at least on this issue Mr Major should be able to count on the support of the Opposition.

The task of rebuilding public confidence in the private pensions business is going to be long and hard, and goes far beyond the provision of compensation for those who have lost out. It will require a stable fiscal framework for long-term savings rather than one which flits from gimmick to gimmick in successive Budgets. It may even require a form of compulsory savings. The sooner the private pensions sector is placed on a soundly regulated footing, the sooner this vital strategic task can begin.