Equitable Life Policyholders (Compensation)

I beg to move,

That leave be given to bring in a Bill to make provision about the paying out of compensation under the Equitable Life (Payments) Act 2010 for persons adversely affected by maladministration in the regulation before December 2001 of the Equitable Life Assurance Society; and for connected purposes.

Most Members will know that I have, for the past 15 years, been campaigning for proper compensation for Equitable Life policyholders who lost pension savings because of Government and regulatory maladministration. My hon. Friend the Member for Leeds North East (Fabian Hamilton)—a friend is what he is to me—has also campaigned, as have many other friends and colleagues from across the House. This has always been a cross-party campaign for justice; MPs from six political parties support the proposed Bill.

For the benefit of Members who may not be familiar with the scandal, it is a sorry saga spanning nearly a quarter of a century. The Equitable Life Assurance Society was considered the gold standard of the retirement savings world. Founded in 1762—the world’s oldest mutual insurer—it was widely respected and considered a safe place to invest a hard-earned pension. However, it turned out that in the 1990s the society was effectively being run as Ponzi scheme. Returns and bonuses were being funded by contributions from new Members. The house of cards eventually collapsed in 2000, following a House of Lords court case, which led to the inescapable conclusion that the society did not have enough money to cover its commitments. The question inevitably arose as to how the collapse of one of the biggest and apparently safest pension companies could possibly have happened.

While several inquiries were set up with varying and limited remits, it was not until the parliamentary ombudsman undertook a four-year detailed investigation that we got to the bottom of what actually happened. Although the society was clearly mismanaged, the ombudsman’s 2,800-page report published in 2008—I recommend it to colleagues for bedtime reading—concluded that there had been a decade of serial maladministration by Government Departments and their regulators, whose job it was to oversee the society in the first place. Specifically, the ombudsman concluded that the serial maladministration

“resulted in the true financial position of the society being concealed and misrepresented.”

The ombudsman further went on to say that

“the prudential regulation of the society during the relevant time period failed—and failed comprehensively.”

She said that it was not

“a system failure, but a failure properly to implement…the system of regulation that Parliament had enacted.”

It was the most serious maladministration ever discovered by the parliamentary ombudsman.

It is important to emphasise that the maladministration led to a failure of prudential regulation, which Government Departments and their agencies were responsible for. Although the management of the society had failed, the ombudsman was clear that the prudential regulators alone were responsible for scrutinising the society’s financial returns, and verifying its solvency position. They failed to do that to an acceptable standard. As a result, the society was able to continue to take people’s money, while they had no idea of the house of sand into which they were placing their hard-earned savings for those pensions.

The ombudsman made five findings of injustice that policyholders suffered because of the maladministration. Three of them were related to financial loss. In proposing redress, the ombudsman called on the Government to,

“put those people who have suffered a relative loss back into the position that they would have been in had maladministration not occurred.”

In 2010 the incoming Chancellor of the Exchequer formally accepted all the ombudsman’s findings, and apologised to the more than 1 million people affected. He accepted that the financial losses that policyholders had suffered because of the maladministration amounted to £4.3 billion. He subsequently revised that down to £4.1 billion. Despite that, the Chancellor announced that only £1.5 billion compensation would be made available as redress, citing the state of the public finances at the time. Personally, I think that where the state has accepted responsibility for a failure and accepted how much someone has lost because of that, it should provide full compensation. That is the moral, correct thing to do and, to their credit, the current Government are taking that general approach to the blood contamination and Post Office scandals, although there are clearly serious issues about agreeing individual amounts and the speed of payments in individual cases.

My Bill, however, is not about the £2.6 billion compensation still owed to those affected by the Equitable Life scandal; it is about the £1.5 billion that has already been allocated. It appears from public information, parliamentary questions, and freedom of information requests that £180 million of the allocated funding is set to be kept by the Treasury and not reach the people to whom it is owed. When the compensation scheme was announced in 2010, the Government decided that of the £1.5 billion made available, 37,000 annuitants would get 100% compensation via an annual top-up payment for life, with £625 million allocated and indexed at that time for that purpose. As a contingency, in case those individuals lived longer than expected, the Treasury held back £100 million. The rest—£775 million—was allocated to 895,000 non-annuitants via one-off payment, effectively giving them 22.4% of their acknowledged losses. Of that latter group, more than 100,000 people were never traced, contributing to a £24 million underspend of their allocation. In addition, the data shows that the annual compensation payments to annuitants have been running significantly below forecast, by some £54 million from the most recent figures I have seen. That means that the £100 million contingency reserve will never be spent. In total, around £180 million—over 10% of the money allocated to compensate people for their losses—is set to be kept by the Treasury, unless something is done.

The Bill that I propose would require the Treasury to pay the full value of the £1.5 billion allocated for compensation to those affected. In doing so, I would prioritise around 10,000 of the most elderly annuitants who were, in my view, unfairly excluded from compensation simply because they bought an annuity prior to the Government-imposed cut-off date of September 1992—I have never understood why that date was chosen. The reality is that those annuitants suffered the same consequences as others: reduced pension payments because of maladministration and the failure of prudential regulation. Through campaigning by Members of this House and the Equitable Members Action Group, the Government announced an ex gratia payment to that cohort in 2013, which was welcome in so far as it went.

However, that cohort should be treated the same as other annuitants. According to EMAG, ensuring that would cost around £108 million, after deducting the cost of the ex gratia payments that the cohort received. This group represents the most elderly and vulnerable policyholders. Those who are still alive are in their 80s and 90s. Many will be veterans who served and risked their life for this country, and who we have so recently celebrated and thanked. Many others worked in our national health service and other services. They should be treated fairly, in line with other annuitants. Payments can be calculated simply and quickly. The Government, the Treasury and the Prudential, which took over their policies, know who they are and where they live.

As we might imagine, the people who saved responsibly for their retirement find it difficult to understand why they have not had full redress, when the state has accepted responsibility for the failure that led to their financial losses, which have been calculated and accepted by the state. In the absence of full redress, it must surely be right that the money that has been allocated for compensation actually reaches those affected. It must also be right to prioritise the most elderly and vulnerable. That is what the Bill seeks to do, and I hope that the House will give leave for it to be introduced. It is supported by MPs from six political parties and, I am sure, by many other colleagues.

That Bob Blackman, Christine Jardine, Fabian Hamilton, Sir Desmond Swayne, Siân Berry, Jim Shannon, Stephen Flynn and Andrew Rosindell present the Bill.

Bob Blackman accordingly presented the Bill.