Pru inquiry made formal

BY JOHN WILLCOCK

Financial Correspondent

Britain's biggest insurer, Prudential, was delivered a potentially damaging blow yesterday after one of the City's top regulator's upgraded its probe into the company's mis-selling of pensions. Lautro, the unit trust and life assurance regulator, has put its unofficial inquiry into the Pru on "a formal footing". Its informal inquiry began almost a year ago.

The investigation comes just a week after the Pru admitted it would have to make provisions against possible claims for compensation from customers given bad pensions advice.

Two months ago, the Pru's outspoken chief executive, Mick Newmarch, abruptly resigned from the company. He had been adamant throughout last year that the Pru had not given poor advice to customers transferring out of company pensions schemes into private ones.

In a leaked letter last summer, Mr Newmarch had urged Lautro to keep the inquiry into the Pru's selling of pensions "informal" rather than "official". It was believed that one reason for Mr Newmarch's combative attitude last year was that an official inquiry had to be notified to the Stock Exchange but an informal one could be kept secret.

Yesterday, the Pru's spokesman said: "I don't know whether there's an enormous difference between a formal and an informal inquiry, but we said we would tell the market and that's what we've done. The positive indication that we would take from it is that the inquiry might be completed in the near future. We're very keen that it's completed as soon as possible."

Prudential received Lautro's unpublished draft findings at the end of last year and sent its response to Lautro on 1 February. The company said it was in regular contact with Lautro, now being merged as part of the Personal Investment Authority, headed by Colette Bowe.

Prudential said for the first time last week that it had made provisions for pensions mis-selling, which is expected to land the industry with a £2bn compensation bill. It did not say how much it had set aside, but expected its share of the bill to be less than its market share of about 10 per cent.

The move is seen as part of a clean-sweep approach by Peter Davis, who was apppointed successor to Mr Newmarch last week.

The spokesman said: "The provision is not material to either our policyholders or our shareholders."

It is generally acknowledged that "material" is taken to mean over 5 per cent of net assets. On this measure, the Pru's provisions could be anywhere from £10m to £50m.

The company increased its general provisions last March, said the spokesman, adding that there was no need for any specific provisions. This year it had made specific provisions, he said, but these "did not relate to the Lautro inquiry". In yesterday's statement, Prudential reiterated its belief that it had complied with Lautro rules on pension transfers.

"We believe that our approach complied with Lautro's rules. Where there is any doubt about the advisability of transferring, we said so. In practice, we advised up to 50 per cent of customers who were interested in transferring deferred pension benefits not to transfer. For the remaining customers, Prudential did not make positive transfer recommendations but did provide the information needed for the customer to come to his or her decision."