Outlook: Pensions scandal demands a hearing

THE PENSIONS mis-selling saga ranks as the biggest financial scandal of the last 20 years. Bigger than Maxwell, bigger than Polly Peck, bigger than Barlow Clowes, bigger than Barings. Bigger, even, than BCCI. In terms of the number of people affected and the amounts involved, this scandal dwarfs all that have gone before.

At the last count, an estimated two million people had been sold grossly inappropriate pensions by fee-hungry salesmen. The cost to the industry of putting it right could reach pounds 15bn.

Strange, then, that in the five years since the scandal first came to light there has been not a single prosecution. Fines have been levied on the pensions industry totalling pounds 10m - a paltry sum set against the scale of the problem - and the worst offenders have been named and shamed for their appalling clear-up rates. But not a single company or individual director has been called to account.

The issue turns on the point at which the sale of an inappropriate pension ceases to be an unfortunate product of poor training and over-zealous salesmanship and becomes a dishonest or reckless act of premeditation. At that point prior intent is established and the action can be punished by criminal prosecution and imprisonment of directors.

The regulators, in the shape of the Personal Investment Authority and Imro, and now the Financial Services Authority, say they have always been aware of the powers of criminal prosecution contained in the Financial Services Act. But they say that despite the millions of cases that have come to light, there has never been any reason to suppose prior intent.

It is equally reasonable to question whether this can possibly be the case. Unlike Maxwell, Polly Peck and Barlow Clowes, there is not a single perpetrator to identify. In the case of pensions mis-selling, safety lies in numbers. The sheer extent of the problem and the number of companies and individual salesmen involved provide some natural cover. But can it really be the case that in two million instances of pensions mis-selling, prior intent never existed?

It could be argued that the provisions of the Financial Services Act are too onerous. It could also be argued that, had criminal prosecutions been launched before now, they would have seriously slowed down the process of cleaning up after the scandal and compensating its victims. In criminal cases the burden of proof is much higher, which is one reason why the new Financial Services Bill will make insider dealing an offence punishable through the civil courts.

But it was always unlikely that those conducting the pensions review would easily refer cases on to the police. Remember that the review is being carried out on a self-regulatory, voluntary basis by organisations that are run by the practitioners themselves.

It is too much to expect these gamekeepers to turn poacher. But the same constraints do not apply to the company fraud squad at Scotland Yard. If prosecutions are merited, then neither the Treasury nor the FSA should be allowed to stand in the way. If the Government is as horrified as it says it is by the pensions mis-selling scandal, then it must know that one custodial sentence is worth a thousand fines.