Equitable Life

Kevin Foster Excerpts

Thursday 11th February 2016 Commons Chamber

[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”.