MONEY TALK: Compensate the pensioners, whatever it takes

It is anyone's guess whether the new urgency shown by the Securities & Investments Board in clearing up the problem of mis-sold pensions is wholly or partly due to the election of a new government anxious to contrast its own approach with the arm's length stance of the Tories.

But what matters ultimately is getting a solution to the problem before the 1.5 million victims of over-enthusiastic salesmen start retiring in large numbers and then start dying, and millions more postpone making their own pension provisions.

Helen Liddell, the new Treasury minister, has also made it clear to the 24 insurance companies responsible for selling most of the mis-sold pensions that they must accelerate their clear-up rate and achieve new targets by the end of this year and next or face genuine financial penalties.

At the same time, the argument that insurers are being hamstrung by the slowness of occupation pension schemes in giving them essential information on what pensioners would have received if they had stayed in their employers' schemes is losing some of its force.

Insurance companies must now accept the principle that they either negotiate the reinstatement of those who were persuaded to opt out of a good employer scheme, or legally guarantee them benefits from their personal pensions which will be no less than they would otherwise have received. They must also accept the presumption that everyone who opted out of, or failed to join a company scheme was wrongly advised.

Insurance companies are naturally still reluctant to accept responsibility for their pensions plans which were sold by independent financial advisers working on commission. Financial advisers themselves do not have the financial resources to stand behind any guarantee of their own. But insurers should bear in mind that ultimately they will have to find the money to fund guarantees through the Investors Compensation Scheme. The same applies to the cost of compensating pensioners wrongly persuaded by IFAs to opt out of the state scheme.

Exactly how much these guarantees will cost is uncertain. The final bill for providing ultimate guarantees might not come in for decades, and will depend on how well the personal pensions perform.

But there is no doubt the problem would ease if employers were obliged to contribute to employees' personal pension plans alongside their own company schemes, whether those are defined benefit (ie final salary) or defined contribution (money-purchase) schemes. They should have had to from the start.

There is one other thing that needs to be addressed. An astonishing 40 per cent of all potential victims of pension mis-selling have failed to fill in the questionnaires they were sent to establish the facts. A new appeal, backed if necessary by newspaper adverts and television commercials is needed.

q Steve Lodge is away.