Equitable Life Policyholders: Compensation

Fabian Hamilton Excerpts

Thursday 23rd March 2017 Commons Chamber

[Fabian Hamilton (Leeds North East) (Lab)]

It is a pleasure to follow the hon. Member for Harrow East (Bob Blackman), with whom I have worked for the past few years as—I should declare this—the co-chair of the all-party group on justice for Equitable Life policyholders.

I am very sad that after so many years of debating this issue in this House, we are back once again talking about the continuing losses suffered by hundreds of thousands of Equitable Life policyholders. As we have heard, they invested in the world’s oldest life assurance company in the belief that they would be able to have a comfortable old age, but instead, after a lifetime of saving, they find themselves sometimes destitute, and often much poorer through no fault of their own.

[Andrew Selous (South West Bedfordshire) (Con)]

Does the hon. Gentleman agree that the issue is not just one of restitution for our constituents who have lost out, but one of confidence in the whole savings culture for future generations, which is very important, and that the two issues are linked?

[Fabian Hamilton]

Indeed, I do agree, and I will go on to say something about that, but there is also a third dimension, which is that we have a moral duty to ensure that the Equitable Life policyholders are compensated.

How have we arrived at this situation at this point in time, 17 years after Equitable closed its doors to new investors, and seven years after the previous Government promised to ensure that the losses incurred by Equitable policyholders would be compensated? My first involvement in the Equitable saga was to speak in an Adjournment debate that I secured in Westminster Hall on 24 June 2009. In that debate, I spoke about the serious issues facing all our constituents since the crash of Equitable Life, following its inability to meet its obligations and the promises it had made to investors over the decades. Equitable Life 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 the capital invested. That carried on until 1988, when the society realised that its rates were so good and so far ahead of the rest of the market that they were, in reality, totally unsustainable. In December 2000, Equitable Life was forced to close to new business.

[Sir Peter Bottomley (Worthing West) (Con)]

In that year, there was the, to me, rather surprising Appeal Court judgment regarding those who had contracts saying that if they put in more money, they would get greater rates of return. The judgment totally missed the fact that all the policyholders were members of the society. The senior judges did not fully understand the consequence of what they were doing, and it was unfair to too many.

[Fabian Hamilton]

I completely agree with the hon. Gentleman. Unfortunately, the time available limits what I can say about the judgment, and I want to talk about what we need to do now.

By the time Equitable was forced to close, it had more than 1.5 million members, and was one of the biggest societies in the world.

[Kate Green]

Does my hon. Friend agree that many of the members were in modest employment with modest earnings, often in the public or voluntary sector?

[Fabian Hamilton]

I certainly do agree, and I will go on to make that point. It is the very reason I took up this cause in the first place. Like many of my colleagues, I had believed that only the wealthy invested in Equitable—people with hundreds of thousands of pounds to put into their pensions seeking to make a huge return—but I discovered that, in fact, the average pension pot was just £45,000. Ordinary people, saving £20 or £30 a month over a working life, were investing in Equitable.

[Alex Chalk]

Does the hon. Gentleman agree that there is an important business case, as it were, for the Government to do more? If people cannot support themselves without the income that they expected, the burden of doing so will fall on the state, which means there is all the more reason to do more now.

[Fabian Hamilton]

Absolutely. That is a very good point. People were encouraged to save for themselves exactly because neither the state nor the individual wanted people to have to depend on the state always coming up with the money necessary to enable them to have a full and enriching retirement. It was about self-reliance, which has been at the core of the arguments today and over many years in debates in this House. The people who were helping to provide for themselves and who were encouraged to invest in Equitable are the very people who have been let down. They are not the wealthy, but the ordinary people who were putting aside a little bit more for their retirement so they could have a comfortable retirement, and that money has now gone.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The hon. Gentleman mentions that over 1 million people subscribed to the Equitable Life pension funds. Over 900 of them are in my constituency, many of whom, as he says, are people who are just about managing. They have done the right thing, but they are now, at the very best, just about managing. This is about maladministration under previous Governments, so is it not incumbent on this Government at least to open the door a little more to an improved offer that will possibly improve over time to give such savers a fair deal?

[Fabian Hamilton]

I thank the hon. Gentleman for his intervention, because one of the great things we do in this House is to work on moral issues such as Equitable together, across party lines. I am proud to work with the hon. Member for Harrow East—I hope he will allow me to call him an hon. Friend—because he has done an awful lot, and I pay tribute to him for the work he has done. I have done my best to work collectively and collaboratively as the co-chair of the all-party group, because we need to do this together. This is a moral issue, as I shall come on to elaborate.

In July 2008, the parliamentary ombudsman published her first report on Equitable Life, “Equitable Life: a decade of regulatory failure”. On 11 December that year, the Public Administration Committee produced a report entitled “Justice delayed”, which said:

“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.”

Well, there has certainly been no shortage of reports, just a shortage of justice for those who, through no fault of their own, suffered huge losses in the life savings they had accrued over years of hard work.

At the core of the problem is the fact that Equitable Life simply could not meet the obligations it had made for itself, because it had made 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 the ruling of the House of Lords in July 2000, the society effectively stopped taking new business in December of that year, which spelled the end for Equitable. More than 1 million policyholders found that they faced severe cuts in their bonuses and annuities, which caused a huge loss of income on which many small investors were depending. After all, as I have said, the average investment among the 500,000 individual policyholders was just £45,000, which even at its height, according to the Equitable Members Action Group, would have yielded no more than £300 per month.

In its December 2008 report, one of the many recommendations of the Public Administration Committee 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. Where regulators have been shown to fail so thoroughly, compensation should be a duty, not a matter of choice.”

Reacting to the Government’s lack of response to the ombudsman’s report, the then Conservative Opposition expressed their determination to introduce an Equitable Life (Payments) Bill early in the next Parliament, should they form a Government after the general election of 2010. The legislation planned in the coalition agreement did, indeed, include such a Bill and it was introduced in June 2010, shortly after the new Government took office.

On 10 November 2010, I tabled an amendment to the Bill in Committee, supported by my hon. Friend the Member for Harrow East, that would have included the pre-1992 with-profits annuitants—WPAs—who had been specifically excluded from the proposed compensation scheme contained in the Bill. The Bill offered 100% compensation to all with-profits annuitants who had taken out their annuities after 1 September 1992 and, as we have heard, 22% compensation to every other policyholder. Many Members from all parts of the House felt that that was inherently unfair, as the date of 1 September 1992 was somewhat arbitrary. That relatively small group of with-profits annuitants were the eldest and by far the most vulnerable policyholders. Many of them would not even live to enjoy the compensation, were it to be paid. Indeed, that has been borne out in reality.

My amendment to the Bill simply read:

“Payments authorised by the Treasury under this section to with-profits annuitants shall be made without regard to the date on which such policies were taken out.”

The Public Bill Office helped me to draft that amendment. The debate on the amendment took just over two hours, but the Division was lost by 76 votes in favour to 301 against. The debate did, however, strongly set out the case for including the pre-1992 with-profits annuitants.

The Bill received Royal Assent in early 2011 and the compensation scheme was set in motion. At first it was slow, but it began to pick up over the subsequent years. By the end of January 2015, more than £1 billion had been paid out to 896,367 policyholders, although more than 142,000 policyholders were still to be found and could not be traced. The scheme, as we know, has now closed. We also know that 37,764 with-profits annuitants, or their estates, were issued payments by the scheme. Those initial and subsequent payments totalled £271.4 million.

In conclusion, I have to give credit to the coalition Government for introducing a compensation scheme from which the majority of Equitable policyholders received 22p in the pound. I am sure we would all agree that that is a lot better than nothing. However, when we examine the compensation that was paid to Icesave investors following the collapse of the Icelandic banks in 2008, from which every investor received up to £50,000 of their losses in full, the Equitable scheme looks rather less than generous. Given that the average policy involved a total sum invested of £45,000, as I have said, it seems rather unfair to Equitable policyholders that they did not receive more. That is why EMAG continues to campaign for full compensation for all Equitable policyholders in a reasonable way—in line with the growth of the economy, not all at once—and why so many Members from all parts of the House continue to support that view.

Equitable policyholders have been very patient. They understand that the recession, at the time, meant austerity and a huge shortage of money for many parts of Government and the state. What they cannot understand is that, as the economy grows, they are denied any further payments against their very real losses. I have heard, as many right hon. and hon. Members will have heard, heartbreaking stories from individuals and constituents, some of whom have lost everything, including their homes, all because of Equitable’s failure and the company’s “catastrophic” regulation.

I have said in all my previous speeches in the House on Equitable Life that this is fundamentally a moral issue. When the Government are supposed to protect the life savings of individuals who have been encouraged to provide for themselves, as was the case with Equitable, they have a duty to ensure that the losses incurred are adequately compensated. That obligation should I believe, come above pet projects such as, perhaps, HS2 and even Trident renewal; otherwise, the whole fabric of trust in the state is damaged, which I believe is exactly what has happened in this case. Finally, I urge all Members of this House to continue to uphold the cause of Equitable policyholders and to try to restore their faith in the ability of Members of this House, as the elected representatives of the people, properly to compensate the victims of one of the greatest financial scandals of our age. After all, I believe we have a moral duty and we should not be afraid to carry it out.

[Sir Peter Bottomley]

On a point of order, Madam Deputy Speaker. I would like to correct an oversight. When I intervened on the hon. Member for Leeds North East (Fabian Hamilton), I should have declared that I have a small Equitable Life policy.

--- Later in debate ---

[Simon Kirby]

I repeat that this is about striking the right balance between the position of the public finances and fairness to all taxpayers, and I will cover that point in more detail as I proceed.

I was talking about further funding being made available to the scheme, but with debt at its highest level since the second world war, tackling the deficit and getting debt falling are challenges that call for long-term discipline, which is why we have no plans to reopen the payment scheme or to review its level of funding.

[Fabian Hamilton]

I thank the Minister for giving way because I realise that time is short. I spoke earlier about Icesave and the £50,000 maximum compensation ceiling. Those who lost money with Icesave and other collapsed banks in 2008 received up to £50,000. Given that most of the investments in Equitable Life totalled around £45,000, will the Minister consider looking at those particular individuals who have suffered most?

[Simon Kirby]

I was going to cover the issue of Icelandic banks later, as might be expected, but there is a big difference between the two. Those ex gratia payments were different from the Equitable Life scheme in that the Government expected to recover, and indeed did recover, all the money paid to UK depositors as the banks were wound up. It is not fair to compare the two.

I will now address some of the specific issues that have been raised. My hon. Friend the Member for Harrow East said that the payments were not transparent. Transparency is one of the core principles of the scheme, and the methodology of calculation was published in full along with a simplified explanation for the layperson. I am also aware that Her Majesty’s Treasury has met EMAG to discuss the matter and found there to be no errors.

My hon. Friend sensibly asked why the Government cannot commit to paying Equitable Life policyholders in full when the economy has fully recovered and the debt starts shrinking, and it is right that the Government balance the needs of affected policyholders against those of taxpayers, and of public service users more generally. The Government have to tackle a debt of nearly £1.7 trillion, or almost £62,000 for every household in this country, which is a salient point. He also said that the cost of paying the pre-1992 annuitants would be less than £100 million. No assessment has been made of the pre-92 losses, but the Government recognised the hardship faced by the group so paid lump sums of up to £10,000, at a cost of around £50 million. That was new money over and above the original £1.5 billion.

Several hon. Members, including the hon. Member for Bootle (Peter Dowd), mentioned the failure of regulation and the need to stand behind any failure in a financial services group. It is fair to say that this Government, and the coalition Government before us, have fundamentally reformed financial regulation, including, importantly, through the expansion of the financial services compensation scheme.

The hon. Member for Leeds North East, who has moved places and is confusing me only very slightly, said it was unfair that we excluded pre-92 policyholders. I have every sympathy with the position such policyholders find themselves in during retirement, but the policies commenced before any maladministration could have affected investment decisions. Pre-92 policyholders have instead been affected by falling comparative annuity rates in the light of the issues at Equitable Life. I have already referred to the ex gratia payments of £5,000, or £10,000 for those in receipt of pension credit, that were made in December 2013.

The hon. and learned Member for Edinburgh South West (Joanna Cherry) said that the Government have not done enough—a point also made by others. I sympathise with the plight of her constituents. I am glad she recognises that the coalition Government did more to address the issue than any Government who preceded them. She asked about the Chancellor of the Exchequer; he was clear in his spring Budget that the scheme is closed and no more money is forthcoming.

My hon. Friend the Member for Stafford (Jeremy Lefroy) made some eloquent points about regulation. I agree that trust is vital, and I am proud of the reforms made to the regulatory system. Many people say we have too many regulations; I always think that financial services are there for everyone so it is important that we provide an appropriate level of protection for everyone, big or small.

The hon. Member for Ellesmere Port and Neston (Justin Madders) suggested that the Government had ignored the ombudsman’s recommendations. The ombudsman’s report was the foundation of the payment scheme. As I said, the ombudsman subsequently wrote to the all-party group. Whether or not we agree about the term “incompatible”, the ombudsman said that the Government’s decisions on affordability and eligibility cannot be said to be incompatible with her report. The hon. Gentleman also mentioned the 2010 manifesto. It is worth saying that payments were fair to both the taxpayer and policyholders, with the most vulnerable groups receiving 100% of their losses. The whole scheme is based on the ombudsman’s report.