Age-Related Payments Regulations 2013

Lord Newby Excerpts

Monday 22nd July 2013 Grand Committee

Moved By

[Lord Newby]

That the Grand Committee do report to the House that it has considered the Age-Related Payments Regulations 2013.

Relevant document: 7th Report from the Joint Committee on Statutory Instruments.

[Lord Newby]

My Lords, as noble Lords will be aware, this Government established the Equitable Life payment scheme in 2010 to make payments totalling up to £1.5 billion to as many as 1 million former Equitable Life policyholders who suffered financial losses as a result of government maladministration that occurred in the regulation of Equitable Life. Since the establishment of the scheme, the Government have received representations suggesting that a specific group of elderly policyholders who bought their with-profits annuity from Equitable Life before 1 September 1992 should be included within the scheme.

The Government remain of the view that there is no basis for their inclusion in the scheme. The reasons for the exclusion of this group of policyholders are well documented and have been subject to debate in Parliament. In short, the Equitable Life payment scheme is based on the understanding that those investing with Equitable Life relied on regulatory returns that were subject to government maladministration. As such, they had lost the opportunity to make a fully informed decision and if they had had this opportunity, they might have invested elsewhere. The first returns that would have been different if maladministration had not occurred were those of 1991, which would not have influenced policyholders’ decisions until September 1992. Therefore, investment decisions made before this time are not included in the scheme.

However, it is clear that this particular group of policyholders are under financial pressure in their later years, as they have not received the income they hoped for from the Equitable Life annuity that they bought more than 20 years ago. In this year’s Budget, the Chancellor announced that the Government will make an ex-gratia payment of £5,000 to those individuals who bought an Equitable Life with-profits annuity before 1 September 1992 and were aged over 60 on 20 March 2013. An additional £5,000 will be available to those policyholders who meet the above criteria and are in receipt of pension credit.

The draft regulations before the Committee today confirm the rules surrounding these payments. Policyholders will not be required to prove their eligibility for these payments; instead policyholder information held by the Prudential, which makes regular annuity payments to all Equitable Life with-profits annuitants, will be used to identify those eligible for a payment. Eligible individuals will receive one payment of £5,000—£10,000 if they are in receipt of pension credit—regardless of the number of policies they hold. I can also confirm that should an annuitant pass away after the Budget announcement on 20 March this year but before receiving their payment, the payment will be made to their estate. The rules are available in full on the Government’s website.

The Government recognise the need to issue these payments to elderly individuals as soon as possible. The Treasury has been considering all the possible options for delivering these payments quickly and efficiently. I am pleased to confirm that it now plans to make these payments within the current financial year, rather than in 2014-15 as previously envisaged. It is currently planned that in the coming months letters will be dispatched to all eligible policyholders to inform them of the Government’s plans to make these payments. A few months after that takes place, the payments will be issued to all living pre-1992 WPA policyholders. Payments to estates, and the £5,000 additional payment made to those overseas policyholders in respect of their receiving a specified equivalent to pension credit, will be made later this financial year.

The letter sent to all eligible policyholders will also advise that they check their eligibility for pension credit. Individuals will have until 1 November this year to do that, and to apply for pension credit if necessary. Policyholder information will then be securely shared with the Department for Work and Pensions to identify those eligible policyholders in receipt of pension credit. The payments due to them will be increased from £5,000 to £10,000 accordingly before they are dispatched. More information on the delivery of these payments will be announced in due course. Finally, I draw the Committee’s attention to a correction slip issued today that makes minor corrections to the numbering of the regulations. I commend the regulations to the Committee.

--- Later in debate ---

Finally, perhaps the Minister can put this in a broader context for us. Many millions of our fellow citizens are undergoing financial pressure at the current time which is not of their making. Of course, pensioners are often least able to deal with the consequences of reducing income because it is more difficult, if not impossible for them to access the labour market. My question is a composite one. Why £5,000; why this particular group of beneficiaries among all those suffering financial hardship; and what was the process which led to this decision?

[Lord Newby]

My Lords, I am extremely grateful to the noble Lord for the speed with which he joined this debate from the Chamber and for his typically forensic questions. He asked me whether the reality validates the view we originally took on under and overpayments on Equitable Life. I believe that it does. If I am wrong, I will write to him, but I think that it does. He asked when the payments would score. I believe that they will score when they were made, so earlier.

The noble Lord asked one or two detailed numerical questions. How many would be precluded by being under-60 at the relevant point? I understand that there are 19, so it is literally a handful. He asked about how many are resident overseas. There are 223 overseas policyholders, 125 of whom are within the EU. He asked about the incomes of the people involved—how many would be paying tax at the various rates. We simply do not have information about the incomes of those pre-1992 with-profits annuitants.

The noble Lord asked whether there would be multiple payments. No, there will not be multiple payments. There will be one payment per policyholder even if they have more than one policy. He then asked the wider question of why £5,000 and why this group. These are simply matters of judgment. Should it be five rather than four rather than six? The view taken by my colleagues in the Treasury was that £5,000 had a sense of justice about it, and that it was felt broadly right and was affordable.

Why this potential group? As the noble Lord knows, this group has been part of the debate about Equitable Life all the way through—about where do you draw the line between payment and non-payment. After a very long period of discussion it was simply thought that these groups were Equitable Life policyholders who had not got the sort of benefit that many other Equitable Life policyholders had got, notwithstanding the fact that they were not subject to maladministration in the same way, and that it was a question of fairness to them. That was the telling argument which decided us on this course.

I hope that I have answered all the noble Lord’s questions. On that basis, I commend the regulations to the Committee.

[Lord McKenzie of Luton]

I am grateful for the very full answers that the noble Lord has given, but perhaps I may come back on this issue of only one payment. I hear very clearly what the Minister says. Either I am misreading the Explanatory Note, or it is something that we will have to settle outside our discussions today, but it would be good to be clear on that.

On the issue of who we are supporting here, it is quite possible that the people who are getting these ex-gratia payments are higher-rate taxpayers as well as people who do not pay tax at all. Obviously, having a tax-free ex-gratia payment is of particular value to such people. The overall cost, which is, I think, £45 million, is not in these days a small sum. This is why my last question is about all the demands and all the challenges that we have, particularly some of the benefit changes. Why spend £45 million on this group, including some who are higher-rate taxpayers who are going to do very well out of a tax-free ex-gratia amount? I think that I have made the point, and I am grateful for the noble Lord’s explanations.

[Lord Newby]

I do not think that there is any doubt that one individual will get a maximum of one payment. I am sorry if the note is not very clear but I think that that is correct. Should these payments be tax free? One of the considerations—bearing in mind that these are not insubstantial payments, but they are not vast payments—was that, given that we do not know the current incomes of the people, having a common payment to this group of elderly policyholders seemed to us to be the easiest, simplest, and fairest outcome.

Motion agreed.