Age-Related Payments Regulations 2013

Lord McKenzie of Luton Excerpts

Monday 22nd July 2013 Grand Committee

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his introduction to these regulations. They take us back to the saga of Equitable Life, which spawned a range of inquiries and reviews, including those by the FSA, the Treasury Select Committee, the actuarial profession, the Treasury, the ombudsman—twice—and the Public Administration Committee. I do not propose to pick over those in detail this afternoon. As we have heard, they culminated in the Equitable Life (Payments) Act, which came before your Lordships’ House in 2010 as a money Bill. The Act, which we supported, introduced a payment scheme to be operated by an independent commission. It would seem that the scheme is well under way and is open until April 2014, although annuitants will clearly continue to be paid thereafter.

One bone of contention with the proposed scheme was the overall amount of money allocated, although the Parliamentary Ombudsman recommended the need to reflect a public interest consideration and the impact on the public purse. Another bone of contention was the starting date of the scheme which, as we have heard, applied to policyholders who invested from September 1992. In justifying not including earlier investment, the then Minister—the noble Lord, Lord Sassoon—stated:

“The first issue here is that they took out policies before any maladministration could have affected their decisions”—

that reflects what the Minister said earlier today. He continued:

“That is the first and principal reason why they have not been included in the Government’s proposed payment scheme … Sir John Chadwick and Towers Watson”—

the actuaries—

“… concluded that the pre-1992 WPAs received more from Equitable Life than they would have if the society had been properly regulated”.—[Official Report, 24/11/10; cols. 1157-58.]

As it paid out more in the earlier years but less in later years than it would have had there been no maladministration, “no compensation is due”. We are told that the Government remain of this view. That is what the Minister reiterated earlier. Can he confirm that and tell us whether any updated assessment was undertaken to verify the balance of the over and underpayments in that analysis? Does it still fall in a way that validates the view then expressed?

--- Later in debate ---

[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.