Equitable Life (Payments) Bill

Lord Willoughby de Broke Excerpts

Wednesday 24th November 2010 Lords Chamber

[Lord Willoughby de Broke]

My Lords, I declare an interest as a trapped annuitant of Equitable Life, but I am one of the lucky ones who comes within the post-1991 provisions. According to the Bill and the Explanatory Notes, I will be compensated. I congratulate the Minister on dressing up a bare half loaf as a full and scented loaf of bread because a number of pensioners fall outwith the provisions of the Bill, in particular the trapped annuitants who are in the same position as those of us who are going to be compensated, but who took out their pensions before the end of 1991. I should like to speak up for those people.

These people are suffering in the same way as the post-1991 trapped annuitants, but they will not be compensated. It is worse for them because they are older and have no real means of support other than their pension payments, which have been greatly reduced. But for what I believe are spurious financial reasons, they have been excluded from the provisions of this Bill. I say that they are spurious because I read the debate in the other place in which Mr Mark Hoban set out the provisions of the Bill. The substance of his argument was that because of Equitable Life’s maladministration, the earlier pensioners were so-called “over-bonused” in the years before 1991. They had received more money than they should have and therefore they did not need any money after 1991. I do not think that stacks up either factually or morally.

It was not their fault that they were over-bonused, it was yet more poor regulation and mismanagement by the board of Equitable Life. Surely it cannot be right that because of so-called over-bonusing for a few years, these people are to be denied any compensation at all. At that point they had no way of knowing that they were being over-bonused, so are the Government really saying that because they were kept in the dark, they should not be entitled to any justice? I cannot believe that that is the Government’s intention. As I have said, they are just as disadvantaged as all the other trapped annuitants of Equitable Life. Moreover, they are older and therefore in more need. It is only right that they should be properly compensated.

Their pensions, as is the case for pensions such as my own, lost value and were significantly reduced after 2002 when the whole horror show became public following the case here in the House of Lords. Like the post-1991 annuitants, they were trapped as well. They were effectively in a house on fire with no escape. The post-1991 trapped annuitants are being offered an escape, but the pre-1991 people are not. I cannot believe that that is what the Government want.

The noble Lord, Lord Kirkwood, was absolutely right to point out that the pre-1991 annuitants did what successive Governments urged them to do. They took out pensions for their retirement so as not to be a burden and to enjoy a reasonable old age. However, they are now left with virtually nothing, with no chance of any compensation whatever. In his opening remarks the Minister quoted what the coalition Government said in May this year:

“We [will] implement the Parliamentary 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”.

But the ombudsman’s recommendation was that all policyholders should be restored to the position they would have been in had no maladministration occurred. That is patently not the case for the pre-1991 policyholders. I should say also that it is not the case either for the unlucky 1 million policyholders who are also, I believe, being unjustly treated: those who have not yet vested. Under the provisions of the Bill, they will receive only around 15 per cent of the compensation that they would otherwise have been entitled to. They will not be getting just a hair cut, but a crew cut, because a cut of 85 per cent is really savage. Of course, as the ombudsman said, public expenditure should be considered but it should be proportionate. Why not take the kind of percentage that government departments are being asked to implement—namely, 19 to 20 per cent—which would be fair? Eighty-five per cent is not at all equitable.

Can the Minister explain a little more fully why the Government first accepted £4,500 million as the amount due to the Equitable Life policyholders in compensation but have now reduced that to £1,500 million? The Chancellor has just tossed £7,000 million to the Irish Government to bail out their failing banks; surely pensions in this country deserve just as much as the bailing out of BIFFO’s banks in Ireland. There must be enough money to spare if we are sending £7 billion over there.

Equitable Life was nothing but a giant Ponzi scheme that slipped under the radar of three successive well-paid regulators. I hope the Government will listen to what the noble Lord, Lord Kirkwood, said about continuing some form of discussion with the Equitable Life Members Action Group to see if they can do a little better than this. I do not believe at the moment that all the pensioners who have suffered from misregulation have been properly compensated. This is not the justice envisaged by the ombudsman.

--- Later in debate ---

[Lord Sassoon]

My Lords, first, I thank noble Lords for their valuable contribution to this afternoon’s debate. It is clear that there is a depth of support for ending the plight of Equitable Life policyholders and that we all agree that this saga has gone on for far too long. I am particularly grateful to the noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lord, Lord McKenzie of Luton, for making it clear at the outset that the Opposition support the Bill.

The matter of Equitable Life is very complex and continues to affect directly the lives of a very large number of people, both in Britain and abroad. There is a pressing need to get on and reach a resolution swiftly, as policyholders have already waited 10 years for the Government to address this long-standing issue. Many of those people are elderly, as we have been reminded, and should not have to wait a day longer than necessary for justice. I shall not repeat the steps that we have already taken since coming into office, but I am grateful to my noble friend Lord Kirkwood of Kirkhope for recognising the steps that the coalition Government have taken.

I am getting somewhat experienced in doing Second Readings and other readings in this House. A great number of technical questions were asked today in relation to the length of the debate. Noble Lords will perhaps forgive me if I inevitably have to leave a number of points on the table, but I will write to sweep up the points that I cannot answer now. I note that the Benches behind the opposition Front Bench are commendably empty of one or two of the usual suspects who tend to come in during my closing remarks, but I will deal with as much as I can.

First, I want to take the opportunity to recognise those who have continually fought in the interests of policyholders, going back to 2000. That point was first mentioned by my noble friend Lord Kirkwood of Kirkhope. Particular mention must go not only to the Parliamentary Ombudsman but to the Equitable Members Action Group and the Equitable Life Trapped Annuitants, who have been referred to already. The Government have held meetings with these parties on numerous occasions and I commend them for their commitment to this cause. Their views have helped us to shape our understanding of the issue and given us an insight into the views of the broader group of policyholders. Their insights have of course proven invaluable. We need to get this right. The best way to achieve that is to interact with the people directly affected and to gain a clear understanding of their position.

There has, of course, been disappointment from those policy action groups about the amount that we have made available for the scheme, but we have had to strike a difficult balance between the valid, deserving cause of policyholders and the wider interests of British taxpayers. It is important to remind the groups that the Parliamentary Ombudsman herself stated that it was appropriate to consider the potential impact on the public purse of any payment. I know, as has been recognised today, that there are many important conversations to be had about how the scheme will operate. It would be preferable to have had all those conversations before turning our attention to the Bill but, in the context of needing to get on and conclude this episode, we wanted to make sure that the process was not unnecessarily extended.

I shall address some other, specific points that came up. The noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lords, Lord Willoughby de Broke and Lord McKenzie of Luton, in different ways, raised the question of the quantum of the pot and the size of the cut for non-WPAs. I can confirm that it is, on average, around 66 per cent. One question was how this compares with a spending review where the departmental cuts were, on average, around 20 per cent. First, the spending review was not a linear exercise; there were different cuts in different areas. Secondly, it has been a difficult balance between fairness to policyholders and fairness to the taxpayers. It is important that we have still managed to cover the costs of payments to the WPAs who purchased their policies after 1 September 1992. I will come back to that cut-off point in a moment, but it is important to recognise that we have covered those payments in full, because we believe that that is the hardest-hit group. It is also important that non-WPAs are still getting more than twice what they would have received with a scheme based on the loss figures produced by Sir John Chadwick’s methodology.

We accept that the relative loss figure is around £4.3 billion. At the end of the day, it has essentially been a matter of judgment as to what the appropriate number should be. Approximately £225 million of the initial £1 billion is for WPAs and their estates, leaving approximately £775 million for the lump-sum payments to non-WPAs. Based on the current Towers Watson estimate of WPA losses, that leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards.

There were questions from the noble and learned Lord, Lord Davidson, and the noble Baroness, Lady Drake, about an appeals process. There will indeed be means by which policyholders can raise concerns about any incorrect application of the scheme rules to individual cases. Full details of that will be included in the document setting out the scheme design, but I can say today that it will certainly include a process whereby, if a policyholder believes that the rules of the scheme have been incorrectly applied to his or her data, he or she will be able to raise a query with the delivery body stating the nature of the concern. The query will be pursued by the delivery body and, if there is merit in the challenge and the challenge is upheld, a recalculation will take place.

If the challenge is not agreed by the delivery body, the policyholder will have the option of taking the case to the review panel. The panel will consider the case in full and will be able to make a fresh decision based on the facts of the case. If a complainant’s case is upheld, again, a recalculation will be carried out. The review panel will be independent of the original decision-making process and will be suitably qualified to consider the complaint in full according to public law principles, although it is too early at this stage to state who might be on the panel.

On the question of why we are covering the cost of post-1992 WPA losses in full, throughout this process the policyholder groups have made it clear that, due to the nature of their policies, WPAs have been one of the hardest-hit groups. They were particularly vulnerable to losses because they were unable to move their funds elsewhere or to mitigate the impact of their losses through employment. They are also generally the oldest policyholders. In answer to the specific question from the noble and learned Lord, Lord Davidson, approximately 37,000 WPAs will be paid under the scheme.

The noble and learned Lord also asked about the role of reliance. Given the time that has elapsed and the almost impossibility of policyholders proving what they would have done in a counterfactual situation, faced with properly regulated returns, a truly reliance-based approach is impossible in this case. I have explained the approach that we have taken.

On the question of how fairness has been worked out within the compensation pot and the principles that applied, the independent commission is now considering the split of the pot. It has made an interim report and its final report will be published by the end of January. The noble Lord, Lord McKenzie, asked about public scrutiny of the commission’s report. At the time we publish the document, I anticipate that my honourable friend the Financial Secretary will want to make a Statement in another place. Before we get to that, there is a further round of consultation by the commission. Therefore, I believe not only that is there a full consultation process but that there will be appropriate opportunity for Parliament to consider the results of the commission’s work. The commission’s report will of course be made available to both Houses of Parliament.

My noble friend Lord Kirkwood of Kirkhope asked about the scheme paying out. I confirm that it is our ambition to make the first payments in the middle of 2011. This is a complicated scheme, and we must get the details right. We believe that starting to make the payments in the middle of next year is an ambitious but achievable target.

My noble friend also asked whether we might in any circumstances be able to pay out more than £1.5 billion. I should make it clear that £1.5 billion is the figure that we judged the British taxpayer can afford to pay, so I cannot hold out any hope of us finding more money at a future date. This process has dragged on too long already, and we need finality.

On capital thresholds and the way in which benefits operate, capital limits do not immediately cut off eligibility for benefits because they work on a sliding scale, gradually reducing support for individuals with larger assets. It is unlikely that many recipients who would otherwise have been eligible for means-tested benefits will receive large enough payments to affect their eligibility dramatically.

In answer to a couple of questions from the noble Baroness, Lady Drake, we have no plans to make interim payments. Again, they would introduce more complexity and could delay the set-up of the overall scheme. We want to focus on getting the main scheme up and running as quickly as possible.

There was a question about consistency with similar payment schemes. The independent commission will consider aspects of fairness that it deems appropriate and the Government will take its advice very seriously. However, it is important to remember that the specific features of the Equitable Life payment scheme make it very different from some other pension schemes, so there is no broad read-across.

There were a couple of questions, including from the noble Baroness, on the gross/net issue. The calculations for the WPA payments are being made on a gross basis. The noble Baroness asked a broad question about long-term savings, which links back to my noble friend’s question about different regulatory regimes. I think that in some ways she answered my noble friend’s question when she pointed out that we had been through one very significant change in the insurance regulatory regime a number of years ago and are about to go through another fundamental change to the overall regulatory set-up. Of course, there is never a no-failure regime in financial regulation, but the landscape will change significantly. In that context, we take the sustainable and healthy long-term savings market in the UK extremely seriously.

I am conscious that one very important question was asked by the noble Lord, Lord Willoughby de Broke, and was touched on by the noble Lord, Lord McKenzie of Luton. That is the question of the pre-1992 with-profit annuitants. The first issue here is that they took out policies before any maladministration could have affected their decisions. That is the first and principal reason why they have not been included in the Government’s proposed payment scheme. WPAs were affected by Equitable Life being run badly, in part as a result of the Government’s maladministration. Sir John Chadwick and Towers Watson looked into what these WPAs would have received had there been no maladministration. They concluded that the pre-1992 WPAs received more from Equitable Life than they would have if the society had been properly regulated. That is because Equitable Life paid out more to them in the early years than it would have done if there had been no maladministration. Even though it paid out less than it should have done in later years, the former overpayment outweighs the latter, so it is the Government’s view that no compensation is due to that category of annuitants.

[Lord Willoughby de Broke]

My Lords, I direct the noble Lord’s attention to paragraph 15 of the Explanatory Notes, which says:

“They are a group of policyholders who are ‘trapped’ in their policies, in receipt of a declining income in their retirement and generally the eldest”.

That is the absolute definition of the pre-1992 annuitants. Their income has gone down very significantly since 2002 and it was not, as I said, their fault that they did not know that there was maladministration. It is grossly inequitable that they are left out of this arrangement altogether and just abandoned to twist in the wind by the Government.

[Lord Sassoon]

My Lords, I am conscious of the time that we have got to. I can only repeat that, while I accept what the noble Lord reads out as factually correct, he omits to point out what I have said: it is nevertheless the fact that those pre-1992 annuitants could not have been affected by maladministration, which is the purpose of this compensation scheme. Although I entirely accept the analysis of what has happened to their income levels in recent years, the judgment is that, on balance, they were paid more in the early years than they should have been, and that exceeds the reduction in more recent years. It is a regrettable situation but not one that it would be proper to bring into the compensation scheme.