Equitable Life

Ian Blackford Excerpts

Thursday 11th February 2016 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a pleasure to sum up the debate. I warmly thank the hon. Member for Harrow East (Bob Blackman) and those who signed the motion. As has been pointed out, the wide-ranging all-party parliamentary group has 195 members from all parties, which demonstrates the interest hon. Members take in this matter. It was also said in the debate that, in each of our constituencies, there are around about 2,000 Equitable Life policyholders, which shows the scale of the problem we face and why we must take the matter seriously. I am delighted that we are having this debate today.

The hon. Gentleman talked about the outrageous scandal, which is exactly the point. He went on to talk about the perceptions of market risk—markets going up and down—and the promises that were given to Equitable Life policyholders. However, in the main, we are not only talking about promises, because Equitable Life gave guarantees to its policyholders. We ought to reflect on that point, particularly in the light of what he said in the debate about who knew within the company, the regulator and the Government. Ultimately, the Government must stand behind the regulator when there is market failure of the degree that took place with Equitable Life. That is their responsibility.

The hon. Member for Bexhill and Battle (Huw Merriman) spoke at the tail-end of the debate. I say to him that everybody understands that all parties want a balanced budget, but we also have a moral and ethical responsibility to protect the consumer interest. That is what we are talking about today. I ask the Minister to reflect on what was said by the hon. Member for Harrow East and others on looking for those who have pre-1992 annuities and considering what can be done for them.

Two broad themes have been mentioned time and again in the debate: fairness, which was mentioned by the hon. Members for Sittingbourne and Sheppey (Gordon Henderson) and for North Devon (Peter Heaton-Jones); and regulatory failure, which goes back to the Government’s ultimate responsibility, and which was mentioned by the hon. Member for Eddisbury (Antoinette Sandbach).

The hon. Member for Romsey and Southampton North (Caroline Nokes) made the point about the 2,000 members and the fact that all hon. Members are still getting letters from constituents. Many of my SNP colleagues have had them in the past few weeks.

One of the most important points was made by my hon. Friend the Member for Angus (Mike Weir) and others. We must have confidence in the financial markets. If we are not going to stand behind the policyholders in this case, that undermines the savings culture that we want. We want people to invest in pensions and know that there is consumer confidence problem. We must tackle that.

I want to put this debate in the context of the good debate we had just a couple of weeks ago on the Financial Conduct Authority. One much-discussed theme was the importance of consumer protection and trust. On the back of scandals such as those involving Equitable Life policyholders, it is clear that many consumers are concerned about whether they can trust the providers of financial services products, whether they can trust the regulatory regime to protect them, and whether the Government will discharge their obligations to protect the consumer interest. The significance of that cannot be overstated.

[Brendan O’Hara (Argyll and Bute) (SNP)]

Given that the regulator was there to protect consumers and that the Government were standing behind the regulator, does my hon. Friend agree that, when that regulator failed to protect the consumer, the Government had a moral obligation to step in and protect policyholders?

[Ian Blackford]

I strongly agree. I can hear my hon. Friend the Member for East Lothian (George Kerevan) commenting in the background—he made that same point in the debate, as did the hon. Member for Reigate (Crispin Blunt). There is unity in the House on wanting a savings culture. We want people to retire with decent pensionable income, but we will create that confidence only if we show that we are prepared to stand behind the Equitable Life consumers. They were let down by the company and the regulator, and the Government have that moral and ethical responsibility to step in. That should not be underestimated.

[Kevin Foster (Torbay) (Con)]

Does the hon. Gentleman agree that this is partly about building intergenerational confidence? We want people to start saving for pensions in their late 20s and their 30s. They need to have confidence that that money will still be there in a pot in future, and that there is a proper system of regulation. This is about building confidence for those who will save in future, and not just about the Equitable Life policyholders who have been affected in this instance.

[Ian Blackford]

I strongly agree with the hon. Gentleman and am happy to associate myself with his comments. It is about creating that long-term stability in the financial services industry and ensuring that we have the right regulatory regime. We must have the right architecture for both private and public pension provision in this country. I hope all in the House have a shared interest in doing that. That is why the debate is so important, and why the Government must respond in the correct manner. How we deal with the long-running saga of Equitable Life is important in the context of his intervention.

Let us remind ourselves of the background. Equitable Life was a major provider of with-profits pension plans. A minority of policyholders invested in policies that offered a guaranteed annuity rate. That rate was set below the normal historical rates, but towards the end of the 1980s, that “normal” changed. Increasingly, the guaranteed annuity rate was over-generous and ultimately unaffordable to Equitable Life in the long run. In response, Equitable stopped sales and reduced the capital value of the pension pots by reducing discretionary bonuses. Guaranteed annuity rates were thus maintained only because the capital sum was far lower than had been expected.

Ultimately, GAR holders took legal action to stop Equitable from rigging pension payouts and won in the House of Lords in 2000, as my hon. Friend the Member for Angus mentioned in his speech. That judgment increased the financial burden on Equitable by about £1.5 billion, a sum that threatened its solvency. Equitable Life hoped to fill that gap by suspending distributions to policyholders and by selling the business, but it was unable to find a buyer. It ceased all further business and became a closed fund. It also had to reduce policy bonuses, and hence the ongoing pensions of investors. Pensions reductions of up to a third were common. It was a perfect storm.

Policyholders have long tried for compensation. Two ombudsman reports concluded that there had been maladministration and that injustice had been suffered. We should remind ourselves of what was said in the second ombudsman report. The conclusion stated:

“the Government should establish and fund a compensation scheme, with a view to assessing the individual cases of those who have been affected by the events covered in this report and providing appropriate compensation.”

I emphasise “appropriate compensation”.

[Margaret Ferrier (Rutherglen and Hamilton West) (SNP)]

I want to highlight the case of my constituent, Mary, an ex-machinist, and her husband, an ex-electrician’s mate. They worked all their lives contributing to our society and economy for decades and opted to invest a substantial amount of money in a scheme—an Equitable Life scheme. Due to years of negligence by the company and different Governments, the money was snatched away. Sadly, Mary’s husband passed away last year and she was given only a small amount of compensation. Her husband is not here to see justice being served. Surely we must act for Mary and other Marys across the UK?

[Ian Blackford]

I wholly concur with my hon. Friend and her constituent. Other Members have made the point that there is a sense that the Government must act quickly because the policyholders are dying. We have a responsibility to deal with the problem in a timely manner.

I am conscious of time, so I will try to wrap up quickly. The 2008 report also stated that regulation was not implemented properly, meaning

“consistently, fairly, and with proper regard to the interests of those directly affected”.

We understand that that involved previous Governments—the Minister will be pleased to hear that not even I would blame the current Government for this one—but we do have a responsibility to reflect on what has been said and what actions we should take as a consequence.

All the parties involved accepted the ombudsman’s second report and accepted the case for compensation. During the inquiry, EMAG told the ombudsman that it had calculated the loss for those investing after 1990 at £3.2 billion if they remained with Equitable as against £4.6 billion if they had invested elsewhere. The final conclusion from the ombudsman states:

“The government should establish and fund a compensation scheme. The aim of such a scheme would be to put those who have suffered a relative loss back into the position that they would have been in had maladministration not occurred.”

We have all reflected on what the Government did with the £1.5 billion, but it is the issue of fairness that we keep coming back to.

This has already been mentioned, but it is worth stating again that before the 2010 election, the main Equitable Life policyholders’ action group, EMAG, lobbied MPs to seek support for compensation for its members. Perhaps as a result, the 2010 Conservative manifesto included this brief comment:

“We must not let the mis-selling of financial products put people off saving. We will implement the Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure.”

It has been said today that the Government could not go beyond the £1.5 billion because of the financial circumstances at the time. Let us take this opportunity today to right that wrong and to plug some of that gap. I appeal to the Government to listen to all the points that have been made across the Chamber today and to do the right thing for the policyholders of Equitable Life.