Equitable Life Policyholders: Compensation

Joanna Cherry Excerpts

Thursday 23rd March 2017 Commons Chamber

[Joanna Cherry (Edinburgh South West) (SNP)]

I pay tribute to those who secured the debate, particularly the hon. Member for Harrow East (Bob Blackman), who has worked tirelessly on behalf of the victims of the Equitable Life failure.

Equitable Life policyholders have been failed by three bodies. They were failed, first, by the life insurance scheme in which they invested; secondly, by the regulator; and thirdly, by the Government, who have not done enough, although I acknowledge that this Government and the previous Government moved to do something. The point of the debate is that they have a duty to do more for moral reasons, as other hon. Members have said. They should also do more, again as others, particularly the hon. Member for Bromley and Chislehurst (Robert Neill), have said, in order to underwrite confidence in the financial sector throughout the United Kingdom.

In Edinburgh South West, the financial sector is extremely important. Many of my constituents work in it, and Edinburgh has the second largest financial sector in the UK outwith London. However, quite a number of my constituents are victims of the collapse of Equitable Life and I want to say a little about the personal experiences of two or three.

Others have already dealt more eloquently than I can with the nub of the issue. Basically, it is the shortfall: the difference between the amount in the scheme that the previous Chancellor, the right hon. Member for Tatton (Mr Osborne), created—£1.5 billion—and the total loss, which he admitted was £4.1 billion. There was therefore a difference of £2.6 billion. In the great scheme of things, that is not a huge amount of money, especially when we consider it against the principles that should govern such a situation.

The Government initially attempted to exclude all those who took out schemes before 1992. That would have excluded some of the oldest, most vulnerable, and most incapable of making their voice heard. The Government’s sticking plaster on compensation for the pre-1992 scheme holders—an extra £50 million—does not cover the full amounts lost and continues the unfairness to those least likely to be able to continue the fight against the injustice. The Government’s choice—it is a choice; every Government have to choose their priorities—not to compensate fully those who are unlikely to live long enough to provide the sustained pressure necessary to reverse the decision is most unfortunate.

This is not the first time that the Government have failed on compensation or regulation. Like other hon. Members, I have been present in the Chamber for the debate on the losses of investors in the Connaught Income Fund. I have constituents who suffered as a result of that. Of course, there is also the ongoing issue of the Women Against State Pension Inequality Campaign. Those women invested in their future according to the rules that they understood to apply at the time. During the debate, I have received messages from WASPI women, reminding me to mention them and emphasising that they have suffered a similar injustice to those affected by the collapse of Equitable Life.

I want to say something about the effect on three of my constituents. I will not name them for reasons of personal privacy. I will call them Mr A, Mr B and Mr C. Mr A started to run his own business in his 40s and at that time, he took out three personal pensions with Equitable Life, two for him and one for his wife, who was a partner in the business. When Equitable Life was unable to deliver what it had promised, Mr A and his wife lost their guaranteed annuity rates as the company tried to avoid liquidation. That meant that they were getting only 50% of the rate that the company had guaranteed them. When the coalition Government announced their planned compensation scheme, Mr A expected to be reimbursed to a degree that would at least allow him to lead the sort of life in his old age that he had hoped for when he took the schemes out in the 1980s. However, when he was compensated, he realised he had received only about 4% of the money owed to him. His appeal was successful and was upheld by the independent panel, but the recalculation has never been carried out, despite the strenuous efforts of my predecessor, the previous Member of Parliament for Edinburgh South West.

Mr A still does not have the 50% compensation that he expected to receive, which means that he and his wife have very much had to lower their expectations of old age, and have had to use the equity release scheme to release funds on their home to help them to manage. They would never have expected to have to do that, and indeed had planned against doing so.

[Sir Desmond Swayne]

The second argument I have used to resist full compensation is that we would be requiring taxpayers, many of whom would never have been able to afford such investments, to compensate the annuitants—I accept that the annuitants were also taxpayers. However, the evidence about the modesty of so many annuitants has affected the argument. Equally, I wonder whether it is sustainable to subject justice to a means test.

[Joanna Cherry]

The right hon. Gentleman has obviously thought this through carefully. The conclusions he has come to with his first concern, and the conclusions he is moving towards with his second concern, are very wise. As another hon. Member pointed out, the purpose of having a regulator is to spot when what is promised is not realistic. In a democracy such as ours, with checks and balances and regulators, ordinary investors are entitled to assume that the regulator would say, “This is nonsense and dangerous”, even when a well respected and reputable company had made those promises—these were not fly-by-night investments as far as my constituents were concerned, but investments in a very old and well respected company.

Mr B is quite elderly—he is in his 80s now—and his memory is fading a bit. He was a shopkeeper, which is just the kind of small businessman and entrepreneur that the Conservative Government purport to support. The Scottish National party, too, very much encourages entrepreneurialism and small business—it is in the interests of all of us to encourage entrepreneurialism.

Mr B took out his Equitable Life policy about 40 years ago and has suffered hugely. He told me that, whenever he thinks about what has happened to him and the losses he has sustained, he finds it very hard to describe the pain it makes him feel. He ran a shop in an area of Edinburgh where a lot of his customers were professional people who had also invested in the scheme and told him it was a good thing. He proceeded with all due caution.

Mr B has told people in my office that he is not looking for very much. He wants his rights and his reasonable expectations to be respected. He wanted me to make it very clear today that the current under-compensation underlines his belief that the ideas of trust and bond, which he says used to be so important to investment, seem to have no place in the modern world of financial transactions. It is unfortunate that an elderly gentleman such as Mr B, who has worked so hard all his life in his own business, should have reached that conclusion. He is anxious that, at this stage, late on in his life, if he is unable to pay the debts that the Equitable scheme should have covered for him, he will lose his house—the home where he lives.

The losses of Mr C, another constituent, are substantial —he told me that he believes his losses to be upwards of £200,000. Mr C was a shopkeeper too. He believes that, as he is getting very old, any year could be his last, and that time is quickly running out to find the justice he deserves.

I am making a heartfelt plea to the Minister on behalf of constituents such as Mr A, Mr B and Mr C to look at this again. I wrote to the Chancellor in advance of the last Budget. The Minister was generous in his reply and dealt with matters in detail. I realise that, to a certain extent, his hands are tied, but I make a plea to him to go to the Chancellor to revisit this issue, so that the compensation payments—I use the word “compensation” loosely, as we have discussed—can be considerably increased for all our constituents, but particularly for gentlemen and women in the position of Mr A, Mr B and Mr C. To echo what others have said, it is the right thing to do and the moral thing to do, but it is also in all our interests, because it would increase and underline confidence in the financial sector, which is so important to the United Kingdom.