The Government was right to make an apology on 15 January for the lamentable and reprehensible failure of both the management of Equitable Life and the regulators (the Treasury, Finnacial Services Authority, and the Government Actuary’s Department) for so catastrophically letting down up to 1 million policy-holders over a whole decade (1990-2001). We now know, though the policy-holders did not, that the Society was on the verge of insolvency from 1990, yet was allowed to launch an aggressive marketing campaign which drew in hundreds of thousands of new policy-holders in ordder to pay out bonuses far in excess of earnings to members leaving the scheme – a sort of Ponzi scheme a la Bernie Madoff. By 2001 the Society was hiding a deficit of some £5bn. It then made a series of cuts to policy values through reductions in bonus, exit penalties and further cuts in 2002 which left some policy-holders with losses of over 30%. Those who had with profits annuities found their annual incomes cut in half. The Parliamentary Ombudsman has now found the regulators guilty of 10 counts of maladministration, and has recommended compensation. However, two big caveats remain before this deplorable saga can be finally settled.
The Government has rightly now at last offered compensation, but it is to be limited. Ex gratia payments are proposed for those who have been “disproportionately affected”. Rather than determining itself what exactly this means, the Treasury is now appointing Sir John Chadwick, a former Lord Justice of the Court of Appeal, to advise on the extent of relative losses between policy-holders, the proportion of those losses attributable to the Government’s own maladministration or to the Society’s mismanagement, and which classes of policy-holders have suffered the most. This kind of means-testing is clearly designed to limit the pay-out, not least because it may take 3-4 years for the judge’s investigations to be completed, and 30,000 Equitable pensioners have already died waiting for justice and an estimated 100 more die every week. This is a long way short of full-hearted compensation.
A second unresolved issue concerns accountability. After a manifest and comprehensive failure of regulation by three Government Departments for more than a decade, who is being brought to book? Yvette Cooper, Chief Secretary to the Treasury, drew attention to the fact that the Financial Services and Markets Act 2000 exempted financial regulators from liability for negligence in the courts. One may accept that taxpayers cannot be expected to pay out to cover losses every time a regulator fails to prevent a financial institution from getting into trouble. But that still leaves open the question of what action should be taken to penalise extreme incompetence or negligence in the regulatory function and to forfeit those responsible. I have put down a PQ to the Treasury to get an answer on this, but as usual it looks as though it will be swept under the carpet and those coruscated by the Ombudsman for extreme maladministration will escape with impunity. Yet another example of how the collapse of accountability should now become a major political issue in this country.