Equitable Life – important next steps
20 October 2010
Commitment to a transparent and fair payment scheme for Equitable Life policyholders
Since 2000 there have been extensive investigations and reviews into what went wrong at Equitable Life. These investigations established that there had been maladministration on the part of the Government.
This Government has confirmed its commitment to “making fair and transparent payments to Equitable Life policyholders, through an independently designed payment scheme, for their relative loss as a result of regulatory failure“. The following outlines the steps taken by the Government to implementing that commitment.
Update and next steps
On 20 October 2010, the Government announced that £1.5 billion will be available for the Payment Scheme, £1 billion of which will be paid out upfront over the first three years of the Spending Review period. In making this decision the Government has carefully considered representations from a number of parties, including: the Parliamentary Ombudsman, the Equitable Members’ Action Group Board, Equitable Life and Equitable Life Trapped Annuitants, alongside the advice of Sir John Chadwick.
The figure is based on a relative loss figure of £4.3 billion. This is the difference between what Equitable Life policyholders who invested from the end of 1992 onwards received from their policies, and what they would have received if they had invested elsewhere. It includes all the Parliamentary Ombudsman’s findings – which the Government accepts in their entirety.
The Parliamentary Ombudsman has said “it is appropriate to consider the potential impact on the public purse of any payment of compensation in this case”. In light of the pressures on the public purse, we have decided that it would not be fair to taxpayers to provide more than this amount to policyholders.
Policyholders who held ‘With Profits Annuity’ are trapped in policies that are providing a declining income in their retirement. In light of these factors, the Government decided that a fair balance between the interests of policyholders and taxpayers would be achieved by:
- covering the full cost of losses to policyholders with ‘With Profits Annuity‘ policies – approximately £620 million. This will be paid through regular payments; and
- allocating £1 billion as part of the Spending Review, to cover the first three years payments to ‘With Profit Annuity’ policyholders and lump sum payments to all other policyholders.
The Independent Commission on Equitable Life Payments will provide advice to the Government on how to allocate payments in January 2011, so that the Government can work towards making first payments by the middle of next year. For further information on the Commission please see their website: http://equitablelifepayments.independent.gov.uk/
The Government has also published its response to the Public Administration Select Committee report of 15 October 2010. The Government welcomes the report which is a useful and informative contribution to the debate. The Government’s full response will be available shortly here.
Background and progress so far
On 22 July 2010, the Government published Sir John Chadwick’s advice on the financial losses sustained by Equitable Life policyholders. At the time, the Financial Secretary to the Treasury also invited interested parties to make representations to the Treasury, so they could be considered as part of the preparations for the Spending Review. The Financial Secretary to the Treasury received a number of written representations and also met with the Parliamentary Ombudsman, the Equitable Members’ Action Group (EMAG) Board, Equitable Life and Equitable Life Trapped Annuitants. The discussions and representations have been fed into the Spending Review decision making process.
The Government has always made it clear that the Equitable Life Payments Scheme must deliver fairness to taxpayers as well as policyholders - particularly in light of the challenging economic circumstances. The Parliamentary Ombudsman has also said that “it is appropriate to consider the potential impact on the public purse of any payment of compensation in this case”.
For more information on the Spending Review in general please see: www.hm-treasury.gov.uk/spend_index.htm
The Equitable Life (Payments) Bill
The Equitable Life (Payments) Bill was introduced into the Houses of Parliament on 22 July 2010. The Bill enables payments to be made to Equitable Life policyholders in the future. The second reading of the Bill occurred on 14 September. For more information on the Bill and its passage through Parliament, please see the Parliament website: http://www.parliament.uk/.
Independent advice from Sir John Chadwick & Towers Watson
On 22 July 2010, the Government published independent advice from Sir John Chadwick on the financial losses sustained as a result of Government maladministration in the regulation of Equitable Life. Alongside the report, the Government also published the first robust figures surrounding the calculation of losses suffered by policyholders. These figures were based on detailed analysis of Equitable Life’s database undertaken by the actuarial firm Towers Watson.
Independent Commission on Equitable Life Payments
On 22 July 2010, the Government also announced the appointments of Brian Pomeroy, John Howard and John Tattersall to the Independent Commission on Equitable Life Payments. The Commission will advise the Government on the allocation of payments in January 2011. The commission has already begun its work. For more information on the Independent Commission please see their website: http://equitablelifepayments.independent.gov.uk/
The Government appreciates that there is substantial concern in relation to Equitable Life and is continuing to work hard to address the situation as quickly as possible.
These pages will be kept updated with new information as soon as it becomes available.
Frequently asked questions
Financial Secretary's statement to the House of Commons, 20 October 2010
Financial Secretary’s letter to the Independent Commission on Equitable Life Payments (PDF 1MB)
Press notice: Pn 00/09, 20 October 2010
Government response to the select committee's report 2010-11
Letter from Towers Watson to FST, 19 October 2010
Financial Secretary's written statement to the House of Commons, 22 July 2010 (Parliament website, opens in new window)
The Equitable Life (Payments) Bill and explanatory notes (Parliament website, opens in new window)
Equality Impact Assessment (PDF 14KB)
Delegated Powers memorandum (PDF 33KB)
Letter from Sir John Chadwick to Financial Secretary, July 2010 (PDF 35KB)
Sir John Chadwick's report, July 2010 (Office of Sir John Chadwick website, opens in new window)
Towers Watson's letter to the Financial Secretary, 21 July 2010 (PDF 105KB)
Towers Watson's actuarial advice to Sir John Chadwick 14 July 2010 (PDF 5.7MB)
Terms of Reference for the Independent Commission on Equitable Life Payments - (PDF 59KB)
Letter from Sir John Chadwick to the Financial Secretary explaining the delay to the final report - 25 May 2010 (PDF 83KB)
Read Mark Hoban's written ministerial statement on Equitable Life - 26 May 2010 (Parliament website, opens in new window)
Press notice: Government commits to transparent, fair and independently designed payment scheme for Equitable Life policyholders - 25 May 2010
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