The saga of Equitable Life often seems second only to ‘Bleak House’ in the annals of protracted legal process.
Rummaging through my own papers the other day I realised with amazement that I had first spoken in parliament as long ago as November 2002 in defence of Equitable Life policyholders, who have been treated so shabbily. Although the scandal never affected me personally, I have received in my postbag a long and steady stream of correspondence from Equitable Life policyholders since I was first elected in 2001.
Cynically the last government were happy to delay and ultimately deny justice to thousands of those long-suffering Equitable Life savers who over the past decade have died waiting for a resolution to this crisis. The contrast is stark between Labour’s treatment of middle class, middle England policyholders not regarded as ‘our people’ and account holders at Northern Rock in that party’s North Eastern heartlands. For the latter group, action in the autumn of 2007 was almost recklessly swift and ruinously expensive to the taxpayer.
Yet when the Ombudsman published her report on Equitable Life back in July 2008 the then government sat on its hands for fully six months before issuing a partial rejection of her findings which was subsequently overturned by the High Court. Little wonder that policyholders now suspect that Sir John Chadwick’s most recent review into Equitable Life is a ‘Treasury stitch up’ designed to undermine the four years of work by the Ombudsman.
The failure by the new coalition government to reject the Chadwick Review out of hand has caused deep concern amongst policyholders. I must confess to sharing some of these reservations, especially when I received a letter from the Ombudsman in response to the current Treasury Minister’s statement on Equitable Life on 26 July. She described Sir John Chadwick’s proposals as an unsound and unsafe basis on which to proceed, which “would not in any sense enable fair and transparent compensation to be delivered.”
I fully appreciate that in the current economic environment the government needs to work to stringent financial constraints in calculating the overall compensation package to policyholders. I have no problem with the government telling Equitable Life savers that there is a limit to the overall payouts that the nation can now afford. However, it is not really legitimate for the Treasury simply to hide behind the complex formula set out by Sir John Chadwick in calculating compensation.
He starts by capping overall losses at £2.3 billion to £3 billion (the Ombudsman chose a figure of up to £4.8 billion two years ago). He then proposes that policyholders should receive only 20% to 25% of this figure – the justification for this manoeuvre is that compensation for policyholders should be calculated on the basis that the majority of policyholders would have invested in Equitable Life irrespective of maladministration. To add insult to injury a concept of “internal relative loss” is then adopted to reduce overall loss calculation to £400 million to £500 million.
Hey presto – this conveniently sets the overall compensation pot at about one-tenth of that originally proposed by the Ombudsman in 2008. The unavoidable conclusion is that Sir John has plucked this 20-25% figure from the sky in order to comply with the maximum the new government is willing to cough up to policyholders. I am sorry to say that this sort of tactic has all the worst characteristics of the Blair/Brown era of sleight of hand. The victims of the Equitable Life scandal deserve better.
In fairness, there is also much to be welcomed in the new Treasury team’s approach to resolving the Equitable scandal. We are now working to a clear timetable. There is a commitment to consider representations on the way forward. An independent commission will be established to oversee the delivery and design of compensation payments for the worst hardship cases.
But let’s face facts – one of the lasting problems of a continued failure to deal with the Equitable Life case fairly and openly is the ongoing damage it is causing to confidence in the pensions industry. The breaking down of conventional job security has made ever more important the concept of trust in personal and company pension schemes. Until its collapse, Equitable Life was widely regarded as the jewel in the crown of the retirement providers. The subsequent failure of the regulator to intervene in the Equitable Life affair showed that existing rules to protect the consumer from unreasonable risks would not be enforced. The Treasury and the FSA should have been taking more seriously their role, as regulator, to engender a culture of collective responsibility that would ensure universal public confidence.
The Equitable Life saga now has the potential to undermine trust further in politics as well. We all know after the expenses scandal that faith in politicians is running at an all time low. But as a result of the promises made by political parties during the election campaign regarding justice for policyholders, the handling of the compensation process also has massive implications for the rebuilding of trust in politics and politicians. Most cynical of all would be for the Coalition to recognise the last government’s mistakes and rebuke them for it, only to finesse the structure of the compensation scheme to minimise payouts now that it is in office.
Above all, this is a human tragedy, no less important because it has been dressed up as a squabble over the amount of money given to relatively wealthy middle class folk. Why should people who have saved their entire lives, done the right thing and worked hard be any less deserving of fairness? As an MP who has always campaigned on those principles, I believe we owe it to everyone caught up in this sorry affair to ensure they are treated with respect and compensated quickly and transparently.