Equitable Life

Margaret Ferrier Excerpts

Thursday 11th February 2016 Commons Chamber

[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.

--- Later in debate ---

[Damian Hinds]

I will have to disappoint my hon. Friend, because the public finances remain in a very difficult state. Although the economy and our public finances have improved compared with where they were, money is still extremely tight.

We established a set of rules for the payments, based on the Government’s full acceptance of the parliamentary ombudsman’s findings. The scheme was based on the assumption that all policyholders considered the incorrect regulatory returns when making their investment and would have decided not to invest in Equitable Life had those returns been correct. Obviously, those are quite conservative assumptions. The Government used the ombudsman’s findings to calculate the resulting individual loss by assessing the Equitable Life returns against those of comparator companies. That led to an assessment of the loss from Government maladministration of £4.1 billion.

Despite the constraints facing the public purse, the 2010 spending review announced that up to £1.5 billion would be made available for payment to eligible policyholders. Out of that sum, following consultation, we decided to pay the with-profits, or trapped, annuitants in full. As a result, this group of policyholders will receive an annual payment for life, and the actuarial assessment of those payments is that the Government will be making payments to this group well into the next decade and probably beyond.

The total cost of those payments is assessed to be around £625 million—though that is dependent on how long policyholders live. Importantly, the £100 million contingency fund, to which my hon. Friend the Member for Harrow East referred, is an accounting provision to provide a safety net in case the annuitants live longer than the central forecast. The remaining £775 million of available funding was distributed pro-rata to other policyholders on the advice of an independent commission, and that resulted in a figure of 22.4 pence in the pound of their relative loss.

Of course I know that that was deeply disappointing to many, but these were difficult decisions that were taken in the light of the position of the public finances. As I said just now in reply to my hon. Friend the Member for Broxbourne (Mr Walker), public finances remain in a very difficult position, and we have to take decisions in the interests of overall fairness to all taxpayers.

[Margaret Ferrier]

rose—

[Damian Hinds]

I hope that the hon. Lady will forgive me, but I will make some progress, as time is short.

[Margaret Ferrier]

On that very point—

[Damian Hinds]

I will take the point.

[Margaret Ferrier]

With the Government preparing to usher in the successor to the Trident nuclear weapon system, which is estimated to cost £167 billion, I call into question the Cabinet’s priorities. If the Government can find money for that, they can find money to pay Equitable Life policyholders.

[Damian Hinds]

The hon. Lady’s definition of “on that very point” has a degree of elastic in it.

The motion notes that the ombudsman recommended in her report that policyholders should be put back in the position that they would have been in, had Government maladministration not occurred. What the ombudsman went on to say just after this recommendation, however, is that it was appropriate also to take into account the impact on the public purse when considering the funding of payments.