Cost of pension mis-selling reaches £11.8bn, says FSA

The eight-year official investigation into Britain's pensions mis-selling scandal is drawing to a close, with £11.8bn of compensation paid out to nearly two million people who lost out because of incorrect financial advice.

The Financial Services Authority, which started to assess the damage to consumers from pension mis-selling in 1994, said only a handful of guilty companies have not yet paid up.

It warned that those failing to do so soon would face enforcement proceedings, which can include unlimited fines. The FSA has already fined 346 recalcitrant firms a total £9.6m.

Pension providers have been forced to hand out compensation for bad advice given to consumers between 1988 and 1994. Many people were persuaded to abandon company pensions in favour of new personal pensions introduced in 1988.

In a considerable number of cases the move had a negative impact on people's savings because by not joining or moving away from company schemes it meant losing out on pension contributions from employers.

The FSA has forced companies to pay compensation to put this group into the position they would have been in if they had remained in their company schemes.

Philip Robinson, the director of the FSA review, said: "The pensions review has delivered appropriate redress by our target date. We will continue to work very hard to ensure that the small number of existing cases are dealt with effectively."

The review has also taken in people who inappropriately opted out of additional voluntary contribution schemes, where 87,000 people have been judged to have suffered financially because they missed out on contributions from employers. Compensation in this area has amounted to £300m out of the £11.8bn total.

Separately, Iain Duncan Smith, the leader of the Conservative party, said everyone who contributes to a pension is losing £400 a year as a result of the Government's decision to end tax relief on dividends on shares held by pension schemes.

Speaking at a conference with pensions industry figures, Mr Duncan Smith said: "I have a grave concern that an increasing part of the workforce is heading for retirement with the intention of relying almost entirely on state benefits. We will then face a choice between leaving people in poverty or diverting an ever increasing proportion of future resources to pay pensions."

The Conservatives have been stung in the past over their strategy on pensions, notably at the time of the 1997 general election, when the party was criticised for suggesting people ought to be allowed to opt out completely from the basic state pension. The party has now revised its ideas and wants to boost the state pension.