Equitable Life

Debate between Baroness Laing of Elderslie and Fabian Hamilton

Thursday 26th February 2015 Commons Chamber

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. We must have short interventions. Long interventions are simply not fair, because everybody must have a chance to speak on behalf of their constituents. Members must be polite to each other and make short interventions.

[Fabian Hamilton]

Thank you, Madam Deputy Speaker. Of course, I agree wholeheartedly with my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz).

Equitable Life was established in 1762 and started selling pensions as early as 1913, but it was not until 1957 that the society started selling its now infamous guaranteed annuity rate pensions, which promised a clear and unambiguous return on capital invested. That carried on until 1988, when it realised that its rates were so good and so far ahead of the rest of the market that they were totally unsustainable. In December 2000, Equitable Life was forced to close to new business, but by that time it had more than 1.5 million members.

In July 2008, as the hon. Member for Harrow East mentioned, the parliamentary ombudsman published her first report on Equitable, entitled “Equitable Life: a decade of regulatory failure”. On 11 December that year, the Public Administration Committee produced a report entitled “Justice delayed”, in which it stated:

“Over the last eight years many of those members and their families have suffered great anxiety as policy values were cut and pension payments reduced. Many are no longer alive, and will be unable to benefit personally from any compensation. We share both a deep sense of frustration and continuing outrage that the situation has remained unresolved for so long.”

That is already seven years ago.

On 5 May 2009, Ann Abraham, the parliamentary ombudsman, published a second report, “Injustice unremedied: the Government’s response on Equitable Life”, in which she stated:

“I was deeply disappointed that the Government chose to reject many of the findings that I had made, when I was acting independently on behalf of Parliament and after a detailed and exhaustive investigation.”

There was certainly no shortage of reports, just a shortage of justice for those who, through no fault of their own, had suffered huge losses in their life savings, which they had accrued over many years of hard work.

How could Equitable Life have maintained a rate of return and a guaranteed annuity rate way beyond any competitor in the market? Ann Abraham addressed that question in her initial report of 2008, which took four years to complete. Her answers went to the heart of the anger expressed by investors through the Equitable Members Action Group. At the core of the problem was the fact that Equitable Life simply could not meet the obligations that it had made, because it had no provision for guarantees against low interest rates on policies issued before 1988. It therefore declared bonuses out of all proportion to its profits and assets.

Following a ruling of the House of Lords in 2000, the society stopped taking new business in December of that year, which effectively spelled the end for Equitable. More than 1 million policyholders then found that they faced cuts in their bonuses and annuities, which caused a huge loss of the income on which many small investors had totally depended. After all, the average investment for the 500,000 individual policyholders was just £45,000, which, according to EMAG, would have yielded no more than £300 a month even at its height.

In its December 2008 report, one of the Public Administration Committee’s many recommendations stated:

“We…strongly support the Ombudsman’s recommendation for the creation of a compensation scheme to pay for the loss that has been suffered by Equitable Life’s members as a result of maladministration.”