Press Coverage - 10 July 2008

Equitable report set to blame regulators

Financial Times, by Andrea Felsted and Alex Barker 10th July 2008

Equitable Life policyholders who lost billions after its near-collapse eight years ago will be closer to compensation after a damning report from the ombudsman next week accuses financial regulators of failing to supervise the life assurer.

The long-awaited report by Ann Abraham, the parliamentary ombudsman, is expected to find government regulators guilty of maladministration, according to people familiar with the report.

Ms Abraham will point to a string of regulatory failings as far back as the end of the 1980s through to December 1 2001, when the review period ends.

Her report will point the finger of blame at the now defunct Department of Trade and Industry – responsible for supervising Equitable until the end of 1997 – the Treasury, which then took over supervision, and the Financial Services Authority, which took day-to-day responsibility for regulating insurance in 1999.

The Government Actuary’s Department, which provides actuarial services to government departments and was included in the scope of the review in October 2004, is also expected to be the subject of criticism, according to the people familiar with the report.

Ms Abraham, who acts as a watchdog on parliamentary standards, has the power to recommend compensation for losses caused by poor regulation. Estimates have put the cost of compensating the more than 1m policyholders who lost money in the Equitable debacle at about £4bn.

The report is likely to be studied by government lawyers and ministers for some time before a decision is taken on whether formally to reject or accept the recommendations.

Its conclusions are expected to have implications for the present regulatory framework, the government’s past and future liabilities and the affordability of any compensation claims. Criticism of the FSA will come at an awkward time for the chief City watchdog, which is reeling from the crisis at Northern Rock.

If the ombudsman recommends significant compensation, it will come at a particularly difficult moment for the Treasury, adding to a growing list of demands on the already strained public purse. A Treasury spokesperson declined to “comment on speculation”.

Two years ago the government rejected an ombudsman’s review which found the government guilty of maladministration in the way it had overseen occupational pension schemes. Should the government reject next week’s report, the Equitable Members’ Action Group – an independent association of Equitable members and policyholders – is gearing up to fight for compensation for policyholders who have lost out. Its network of regional action groups will press local MPs to support the campaign.

Almost exactly four years ago, Ms Abraham bowed to intense pressure to reopen her inquiry into Equitable after Lord Penrose criticised the lax regulatory environment governing the mutual. In 2003 she cleared the FSA of claims it failed to protect savers, but the scope of her inquiries was limited.

After lobbying by policyholders and politicians, however, Ms Abraham extended her investigation to consider the role played by the Treasury and the DTI.

The report on her wider inquiry has been subject to a string of setbacks, including a delay last year after she received a 500-page response from bodies including the Treasury and the FSA.

Equitable closed to new business in 2000 after losing a Lords ruling over its treatment of certain with-profits policyholders. It is now being sold off in chunks and, after offloading two tranches of annuity contracts, is seeking a buyer for its £7bn with-profit fund. Prudential, the UK life assurer, is one of the parties eyeing what is left of the mutual.

The ombudsman refused to comment on its findings. It is expected to announce shortly on which day next week the report, expected to stretch to more than 3,000 pages, will be published.

Upheaval at oldest mutual assurer

Equitable Life is Britain’s oldest mutual life assurer, but it has become known for the billions of pounds of losses it has inflicted on more than 1m of its policyholders, writes Andrea Felsted.

Equitable closed to new business in December 2000 after it lost a House of Lords ruling over its treatment of certain with-profits policyholders.

It appointed a new board, with Charles Thomson and Vanni Treves arriving as chief executive and chairman respectively.

They have stabilised the mutual’s finances.

However, they also embarked on a disastrous course of litigation against Equitable’s former auditors and directors, that left it shouldering a £45m legal bill. Equitable is being broken up and sold off in chunks.

In 2004 Lord Penrose delivered a damning report on the near collapse of the mutual.

He said Equitable Life’s 1m-plus policyholders were failed by a combination of “manipulation and concealment” by its senior management and “complacent” government regulation.

Ann Abraham, the parliamentary ombudsman, bowed to intense pressure to re-examine possible regulatory failure over Equitable following the publication of the Penrose report.

Pensions: Ombudsman to savage government and FSA over Equitable collapse

• Darling put on stand-by for highly critical report
• Compensation claims could amount to billions

David Hencke and Rupert Jones in The Guardian, 10th July, 2008

The government is gearing up for a battle with the parliamentary ombudsman over an expected highly critical report next week on failings by the Treasury and regulators that led to the collapse of the world's oldest mutual insurer, Equitable Life.

The report, to be published next Thursday, is expected to find the Treasury, the Financial Services Authority and the government actuary's department to blame for not safeguarding investors' rights, which could lead to claims against the government amounting to billions.

The report is understood to have found maladministration and breaches of rules by the regulatory authorities in the run-up to the crisis that hit the company. These are likely to be challenged by the government, and as a result, the findings may go to a high court judicial review.

Alistair Darling, the chancellor, is planning to resist pressure to pay out billions in compensation to several hundred thousand Equitable Life policyholders by insisting that the government cannot be held liable for all the cash investors lost. Ministers who have read the report are already taking legal advice to see if they can limit their liability because they do not want another multibillion-pound bill following the bail-out of Northern Rock.

Equitable Life shut its doors to new customers in 2000 and later repeatedly slashed the value of a million policyholders' investments after it lost a legal battle involving "guaranteed annuity rates," sold as part of pension plans.

The official Penrose report into what went wrong criticised Equitable's former management, but also highlighted failures by regulators, which over the years have included the Treasury, the Department of Trade and Industry, and the FSA.

The report by Ann Abraham, which has taken four years to complete and has suffered a number of delays, amounts to a dramatic U-turn by the ombudsman's office. Originally she was against an investigation into the collapse, but changed her mind after receiving a host of evidence from MPs and others who had lost millions.

Now she has found there have been failures in Whitehall, which will add to government pressures at a time when money is scarce. The fact that the Guardian has learned that the report was sent straight to the chancellor suggests it is regarded as a serious headache for ministers.

Last year, following a separate inquiry, the European parliament published a highly critical report which called on Britain to set up a compensation scheme for policyholders who lost money.

Paul Braithwaite, general secretary of Equitable Members Action Group (Emag), said: "After eight years of fighting for recognition that regulators were negligent, Emag is delighted that the Treasury delays have finally been overcome and the report will come to light next week. We anticipate there will be recommendations of compensation, and the surprise would be if that were not so."

Abraham originally indicated she would complete her investigation before the end of 2005, and campaigners have in the past claimed that the hold-up is down to ministers stalling for time. These suspicions were fuelled in late 2006 when she said it had become clear that some evidence "had not been disclosed to us". This "missing evidence" - later handed over - "was extensive and might be critical".

Campaigners say the delays mean that an estimated 30,000 policyholders have died without finding out what happened.

Government must mete out Equitable justice swiftly

Daily Telegraph, by Damian Reece 10th July

It is inconceivable that Parliament will ignore the findings of its own ombudsman, Ann Abraham, into the regulation of Equitable Life. The sort of profound, systemic and sustained maladministration, and subsequent injustice, caused by the authorities responsible for Equitable deserves compensation.

What's the point of having a watchdog if you ignore it when it barks? But, having spent four years establishing the facts, it is not guaranteed that Abraham will necessarily recommend the method or amount of compensation due to policyholders. This may require a separate, independent commission of enquiry to establish who should get what and how. This does not seem unreasonable.

However, Gordon Brown cannot be allowed to accept the principle of compensation, only to kick it into the long grass beyond the next election with another long-winded investigation. He must act swiftly to set up the relevant apparatus to establish the terms of the pay-outs. Since Equitable closed, more than 30,000 of its policyholders have died without compensation.

This cannot be allowed to go on, which is why I urge all of you to sign our online petition to add further pressure on the Government to deliver justice, once and for all.

Equitable policyholders' patience has been tested to the limit

Daily Telegraph, by Nic Cicutti – 10th July

Patience is bitter, but it bears sweet fruit. For hundreds of thousands of former and current Equitable Life policyholders, this old saying sums up their hopes and dreams, as the Parliamentary Ombudsman prepares to publish her findings into what went wrong at the company almost eight years ago.

The key part of Ann Abraham's report will be who is to blame for the effective collapse of Equitable in December 2000. If she blames the Government for its failure to regulate the company effectively, compensation claims could run into billions of pounds.

Understandably, some will wonder whether the Government should bail out policyholders who chose to invest with Equitable and are now bleating about their losses.

The reality is different. There are two reasons why compensation should be paid.

The first is that contrary to some reports, the majority of Equitable policyholders were not wealthy middle class savers. Many policyholders had sunk their entire life savings into Equitable over decades. A large proportion were investors in top-up pension funds: the company's demise cost them a large slice of their retirement income.

The second reason is also simple: justice. The central premise of financial regulation is it offers the reassurance that if something goes wrong savers will be protected. If government agencies promise that protection and then fail to provide it, they should be held accountable.

Was the Government truly at fault? With hindsight, the way Equitable policyholders lost their money was quite extraordinary. In effect, from the late 1980s onwards Equitable was paying maturing policies more than they were entitled to receive.

By paying such high returns, the company hoped to win new savers into its funds. Chillingly, however, the cost of such an extravagant bonus policy was being passed on to succeeding generations of policyholders. The only way they could ever receive get similar bonuses was either if investment returns were unfeasibly high or yet more money was pulled in by Equitable.

The government has consistently sought to deny its share of responsibility for what happened.

Yet a detailed inquiry by Lord Penrose, published in March 2004, found that none of this would have been possible had there been proper oversight of the company by regulators. This included officials at the Department of Trade & Industry in the period up to 1998, when responsibility was passed to the Treasury before being handed on to the Financial Services Authority a year later.

Lord Penrose said: "[The] DTI insurance division was ill-equipped to participate in the regulatory process. It had inadequate staff, and those involved at line supervisor level in particular were not qualified to make any significant contribution to the process.

"There was a general failure on the part of the regulators and the Government Actuary's Department [the body responsible for monitoring Equitable's finances] to follow up issues and to mount an effective challenge to management," his report concluded.

It would be nice to think that, in the event of the Ombudsman recommending compensation, the government actually agrees policyholders should be compensated, as they were in the Barlow Clowes scandal some 20 years ago.

Back then, a young MP argued it was the, "fecklessness, gullibility and incompetence of the government who, for months and years, ignored all the warnings about Barlow Clowes that were available to them," that lost investors their money.

The name of that MP? Gordon Brown.

Nic Cicutti is a personal finance commentator

Millions in line for compensation as government expected to be blamed over collapse of insurance giant

Daily Mail, By Michael Lea, 10th July 2008

Pensioners' campaigner Ros Altmann is calling on the government to compensate people affected by the collapse of Equitable Life.as quickly as possible

A Million savers hit by the Equitable Life scandal are to get fresh hope of compensation next week when a damning report is expected to blame the Government.

The investigation by Parliamentary Ombudsman Ann Abraham is likely to accuse the Treasury and financial regulators of maladministration.

They face being held responsible for not spotting problems at the insurance giant, which almost collapsed in 2000.

This would open the door to claims from policyholders who saw billions wiped off the value of retirement pots.

Estimates on the potential cost to the taxpayer are as high as £4billion.

The problems date back to 2000 when 238-year-old Equitable, then a £26billion firm, was forced to close to new investors.

It was unable to pay policyholders guaranteed bonuses when interest rates fell and the promises became unsustainable.

When Law Lords ruled it had to honour the deals, sold to more than 90,000 savers from the Fifties to the Eighties, it blew a £1.5billion hole in the firm's finances, forcing it to slash payouts to other policyholders and sell shares in favour of less risky investments.

The move has left a million facing smaller pensions or working years longer to make up the shortfall.

They have been campaigning for compensation, claiming watchdogs were 'asleep at the wheel' when they should have known about the dent in the company's finances.

The ombudsman's office refused to discuss the report's contents yesterday but confirmed the findings of the four-year probe could be published on Wednesday or Thursday.

However, sources close to the inquiry indicate that a draft shows the Treasury, Financial Services Authority and Government Actuary's Department face criticism.

Miss Abraham is expected to recommend that victims, many of whom lost at least half their savings and pensions, are compensated.

Jeweller Mike Chatwin, 63, wants more than £100,000.

He took out a guaranteed annuity rate pension in the Seventies and built up more than £300,000.

But poor investment performance and losing his guarantee left him with a pension pot of £200,000.

He had to abandon plans to retire early because of the deficit. He said: 'It's difficult if you are nearing retirement because you don't have many years to make up the losses.'

Full details of the report are secret and the Government could escape total blame. But if ministers dispute the findings and take the matter to judicial review, an outcome for savers could be further delayed.

The Treasury will be keen to limit payouts following the Northern Rock bail-out and the £2.7billion to compensate those hit by the abolition of the 10p starting rate of tax.

Paul Braithwaite, of the Equitable Members Action Group, said: 'We expect Gordon Brown to fight to avoid paying a penny.'

Campaigner Ros Altmann, a former-Government pensions adviser, said: 'If the Government is found responsible for the losses, it should comply with what the ombudsman says as quickly as possible rather than make people wait more years.

'If the Government can find billions of pounds to bail out savers in Northern Rock - who should have been aware of the compensation terms if that company failed - then how can it deny treating fairly people who have suffered losses from failure of the Government itself?'

A Government- commissioned report into Equitable by Lord Penrose in 2004 said watchdogs 'failed policyholders'.

He added that the Department for Trade and Industry and the Treasury, which regulated Equitable from 1998 to 1999, were 'ill-equipped', and the Government Actuary's Department, responsible before 1998, was ' complacent'.

But he said the firm was 'author of its own misfortunes', allowing the Government to avoid compensation.

However, in 2006 the European Parliament ruled that the Government should assume responsibility.

Equitable sold most of its operations, transferring many fixed pensions to Canada Life last February and its £1.7billion with-profits annuities to Prudential in December.

Treasury faces £4bn bill for Equitable fiasco

Independent, by James Daley, Personal Finance Editor
Thursday, 10 July 2008

The Government's reputation for financial competence is set to be dealt another hammer blow next week, as the Parliamentary Ombudsman publishes her long-awaited report into the regulation of Equitable Life, accusing the Department of Trade and Industry, the Government Actuary's Department and the Treasury of maladministration.

The report by Ann Abraham – which has taken four years to complete – will call on the Government to provide up to £4bn in compensation to the thousands of people affected by the Equitable Life debacle, yet another bill the Treasury cannot afford to pay in the current economic climate.

Equitable Life collapsed in 2000 after the House of Lords ruled that the insurer was not allowed to renege on a series of guarantees it had granted to its annuity customers. The ruling left it financially insolvent, forcing it to close to new business and slash the value of many of its customers' policies.

The Ombudsman's report is expected to point the finger at the DTI and GAD for regulatory failures in the early 1990s, as well as at the Treasury and Financial Services Authority, which were in charge of the insurer during the last years leading up to its collapse.

The Ombudsman had hoped to publish her report two years ago. However, the Government came back with more files of evidence – which campaigners claim were stalling tactics. When the report was ready to be published last summer, the Treasury handed over another 550 pages of evidence, preventing it from being released at the start of Gordon Brown's premiership.

The timing is now no better for the Government, delivering another blow to its reputation as a financial regulator less than a year after the Northern Rock debacle.

The report comes just two years after the Ombudsman's report into the regulation of the occupational pensions market, which also found the Government guilty of maladministration. Although the Government tried to brush aside the conclusions of that report, a High Court judge later backed up the Ombudsman's findings.

Eventually, the Department for Work and Pensions agreed to pay up and properly compensate the 125,000 people affected. The Government's move to compensate the occupational pension scandal victims – and its decision to save Northern Rock by nationalising it – will make it hard to sweep aside next week's report.

Charles Thomson, the chief executive of Equitable Life, said he hoped the Government would adhere to the report's recommendations. "If the Parliamentary Ombudsman recommends compensation, we will call on the Government to do the right thing and to do it quickly," he said.

Paul Braithwaite, general secretary of the Equitable Members Action Group (Emag), said 30,000 of those who lost money due to Equitable's collapse have died over the past eight years, while a further 15 die every day. "Based on the evidence that has come to light, we expect the Parliamentary Ombudsman to find massive maladministration by government departments," said Mr Braithwaite. "We also expect Gordon Brown to fight tooth and nail to avoid paying out a penny in compensation."

Emag has set up 20 regional groups to launch a campaign to force the Government to pay compensation. These include Birmingham, Bristol, Cardiff, Manchester, Leeds, Norwich, Plymouth and Edinburgh – and there is a possibility of further groups being laun-ched. For more informat-ion, members should visit www.emagregional.org.uk.

Pensioners count the cost

• "As a result of Equitable I cannot afford to retire, I am 67 years and I also have prostate cancer. I cannot afford to stop work, given that with a state pension of £5,000 per year I would have to go cap in hand to the state for credits. Any faith I had in private pension providers evaporated with Equitable Life."
• "I am now 80 and my wife 84 years of age. Our gross annuity has reduced from £18,700 in 2000 to £9,500 in 2008 – a reduction of 49 per cent. We have resorted to an equity release scheme on my house at a 90 per cent rate to replace some of the lost income. This means that we will not be able to leave anything reasonably substantial to our family, and will severely restrict funds available for illness in old age. We have had to cancel the lifetime care insurance which was intended to contribute towards possible nursing home cover in the future."
• "As a result of Equitable my income has reduced by approximately 33 per cent. This means that 'luxuries' such as holidays, new clothes and repairs to my house and car have to be paid for out of savings. This has not been a problem so far, but savings are irreplaceable and the time will shortly come when lack of income will present a problem."

Equitable Life: When hands off means eyes shut

Daily Telegraph, by Ros Altmann, 10th July, 2008

There are rumours that the Government's handling of financial services may - again - be found wanting. If it is true that next week's long-awaited Parliamentary Ombudsman report into the Equitable Life collapse will lay blame on regulatory failures and recommend compensation for some of the victims, this will be yet another example of our so-called "light touch" regulatory system being more like "hands off" or "eyes shut".

It is clear that regulatory oversight of Equitable Life failed to spot its fundamental weaknesses and left investors exposed to unforeseen risks. As with Northern Rock, one has to ask whether the holes in our regulatory regime are due to a system driven too much by the interests of the industries being regulated, rather than the ordinary people who need to be protected? If there then proves to be inadequate protection to ensure quick redress for failures, then our system may not be fit for purpose.

Equitable Life victims have already waited years for some redress and have high hopes resting on the Ombudsman's investigation. Presumably, if Ann Abraham concludes, after painstakingly examining all the evidence, that their losses were partly caused by Government failings, she will expect the Government to compensate them.

My fear is that the Government could try to resist any calls for Equitable Life compensation in the same way that it continuously refused to properly remedy the occupational pensions scandal over the last 10 years. Then, 150,000 people piled their money into pension plans which they were assured would be able to pay their pensions but when their schemes wound up, they were often left with nothing at all.

The Ombudsman's February 2006 report Trusting in the Pensions Promise, also produced by Ann Abraham, found the Government guilty of misleading members about the safety of their final salary pensions. She recommended the Government should apologise and fully replace the lost pensions plus compensating for the distress suffered by those whose life savings were so cruelly snatched away from them. Yet, more than two years later, the issue has still not been properly settled.

In fact, even though she found the Government was fundamentally responsible, ministers were able to evade her verdicts and similar ones from the parliamentary select committee, High Court and Court of Appeal. So, even if this report recommends compensation, Equitable Life victims may find they have more fighting ahead. So what happens next? Well, obviously we must wait for the report to be published and examine the findings and recommendations. If the Government is, indeed, found guilty of failing to properly regulate Equitable Life, it may simply decide to retreat to its bunker and deny all wrongdoing, rather than hoisting the white flag, accepting the verdict and paying up.

The victims may then have to launch a judicial review of the Government's decision in response to the report and also appeal to their MPs and the Parliamentary Public Administration Select Committee for support. This will inevitably mean further heartache for the victims. And, unfortunately, more public money may have to be spent on the issue.

Two shortcomings are central to the recent problems: poor regulation and lack of official understanding about how ordinary people engage with financial services. How many more financial scandals will taxpayers be asked to foot the bill for, before we can be reassured that the Government actually understands what it is doing in this area?

Ministers and regulators must pay more attention to the needs of those buying financial products, instead of those selling them. This means more intelligent understanding of how unsophisticated investors think and more in-depth questioning of financial providers' business models.

In addition, when things do go wrong, they need to be sorted out quickly, with the Government taking responsibility for what has happened, rather than just denying its responsibility. This is important for us all.

Taxpayers, whether they are investors or not, have an interest in ensuring that government improves its act on financial regulation. But also the public needs reassurance that if things do go wrong, and it is proved to be the Government's fault, that they will be speedily compensated, rather than being forced to fight for years for justice.

Ros Altmann is a pensions campaigner and former pensions adviser to the Labour government.

Equitable Life backs call for damages

Yvette Essen, Insurance Correspondent, Daily Telegraph 10th July

Equitable Life is to call on the Government to pay damages as quickly as possible to policyholders who lost out following the near collapse of the UK's oldest mutual insurer.

Vanni Treves, non-executive chairman of Equitable Life, expects the Parliamentary Ombudsman to recommend compensation is paid when it publishes its report into Equitable Life collapse next week.

His comments come after The Daily Telegraph revealed yesterday that a draft copy of Ann Abraham's report found that the Government was guilty of maladministration in the lead up to the near-collapse of the society in 2001.

"We pressed hard in 2004 for the Parliamentary Ombudsman to investigate, and we have given all possible support to her and her team ever since," Mr Treves said. "If, as we hope, she recommends compensation, then we will call on the Government to act quickly and effectively. Our policyholders have waited long enough."

The demise of Equitable Life, which at its peak had been a £26bn business with over 1m policyholders, was one of the biggest scandals to rock the financial services industry. The mutual, which was created in 1762, was forced to close to new business after it could not afford to pay policyholders guaranteed bonuses.

Ms Abraham's report looks into the roles of the Treasury, Financial Services Authority, Department of Trade and Industry and the Government Actuary Department in the build up to Equitable Life's failings. The rough draft of the report also finds that the Government's failure to correctly regulate Equitable Life has led to injustice for policyholders.

The Government came under pressure yesterday to pay compensation when the report is published next week. The Equitable Members Action Group (EMAG), which has 15,000 paying members, said up to 15 former Equitable Life members were dying a day while waiting for the ruling and 30,000 have passed away since Equitable Life closed to new business.

General secretary Paul Braithwaite estimates policyholders have lost up to £4bn due to regulatory negligence. EMAG has already launched 20 regional groups to lobby MPs for compensation following publication of the report and Mr Braithwaite said the action group will "extend the network later, if necessary".

Philip Dunne, the Conservative MP for Ludlow and a member of the Treasury Select Committee said if the Parliamentary Ombudsman finds that there has been maladministration, "it would seem appropriate for compensation to be payable".

"I, in common with almost every MP, have a number of constituents who have lived with their long-term savings having disappeared through Equitable Life's demise and they are increasingly elderly and in need of compensation while they are still able to get the benefit."

Investors and policyholders in Equitable Life said compensation from the Government was long overdue. Harry White, the former co-ordinator for the Wales regional help group, said: "I think it is high time this problem was made correct by the Government. "

Mr White, 81, added: "Those people who are pensioners suffered enormous difficulties. Every year their pensions are getting less."

Industry experts speculated that the Parliamentary Ombudsman's report could lead to a debate being held in Parliament, possibly a minister having to apologise for the regulatory failure and the creation of an independent commission to determine which policyholders had suffered, to what degree were they hit by maladministration and injustice, and how much they should be paid in compensation.

Equitable policyholders face tough fight for £4bn claim

The Times, by Alex Spence and Miles Costello 10th July

Policyholders in Equitable Life who lost £4 billion when the mutual insurer collapsed could now face an uphill legal battle to recoup their savings.

More than one million policyholders lost up to 50 per cent of their savings when Europe’s oldest mutual insurer almost collapsed eight years ago. Many hope that a report from the Parliamentary Ombudsman, due to be published on July 14, will recommend that the Government pay compensation for their estimated £4 billion in losses.

Ann Abraham, the independent watchdog responsible for investigating complaints into more than 200 public bodies, is expected to find that the Treasury, Financial Services Authority and Government Actuary’s Department should have done more to prevent the crisis at Equitable.

However, lawyers gave warning that the report would not necessarily put an end to policyholders’ long fight to get their money back.

Related Links

• Europe gives new compensation hope on Equitable Life
• Equitable Life drops £700m E&Y claim
• Actuaries’ body expels former chief of Equitable Life

Although recommendations by the ombudsman are very rarely rejected, they are not legally binding. In 2006, the Government rejected recommendations by Ms Abraham that it compensate around125,000 people who lost more than £2 billion when they followed misleading Government advice to invest in occupational pension schemes that were not properly protected.

Last year, in a landmark case that lawyers said will have significant relevance to the Equitable affair, the Court of Appeal ruled that the Government had acted unlawfully and irrationally in refusing to accept the ombudsman’s findings and recommendations in that case. As a result, the Government is now paying the pensioners through the Financial Assistance Scheme.

However, the court also said that the Government had the right to reject the ombudsman’s recommendations provided it gives legitimate reasons for doing so — a decision that gives the Government some room for manoeuvre in dealing with Equitable while leaving the door open to a legal challenge.

If the Government did refuse to pay compensation, Equitable policyholders could seek a judicial review similar to that launched by the pensioners.

Lawyers said there was another avenue open for policyholders to sue the Government — although that, too, was limited.

Jeremy Warner's Outlook: Ombudsman's Equitable Life findings are a further blow to public finances.

The Independent, 10th, July

The problems just keep on piling up for our beleaguered Prime Minister, Gordon Brown. The Government has repeatedly managed to delay the publication of a damning report on the demise of Equitable Life from the Parliamentary Ombudsman, Ann Abraham, but finally the game is up, and next week she's expected formally to declare the Government guilty of maladministration.

This doesn't necessarily mean the Treasury will have to pay out billions of pounds in compensation to disadvantaged policyholders. The obligation to compensate is only a moral one. When the public finances are as far up the creak as at the moment, moral obligations tend to go out the window. All the same, ministers may find it hard to resist.

On a finding of maladministration, the Government has historically paid out more often than not, but if the liability is a big one, as in this case, the authorities tend to dig their heels in. Policyholders will nonetheless draw comfort from the fact that, in the case of workers who lost their pensions after their companies became insolvent, ministers were eventually shamed and sued into paying up.

A precedent was thereby set, but it was very much under the threat of rebellion by MPs. Backbench pressure may not be so intense in this case. The stereotypical Equitable Life policyholder is a retired judge or lawyer. No doubt, there are those living in near penury as a result of the debacle of guaranteed annuity rates, but they don't pull the heart strings, or command the ballot box, in quite the same way as the deprived pensioners.

What's more, Equitable Life was actually only the most high profile of a number of life fund closures of around the same time, some of which had equally dire consequences for their policyholders but have not received the same cause célèbre treatment.

Even so, the Government will face a storm of protest if it tries to resist the Ombudsman's findings. Much of what went wrong at Equitable Life pre-dates the current Labour Government and its reforms of financial regulation.

The real mischief in regulation goes back to the days when the Department of Trade and Industry and the Government Actuary were the assigned supervisors. This is when the key mistakes were made. The die was cast long before the FSA came into existence. But for the pigheadedness of the courts, which upheld the guaranteed annuity rates of some policyholders, the affair might in any case have had a happier ending.

Yet the point at which Equitable Life was actually forced to close up shop occurred under the Financial Services Authority's watch, and, in its latter stages, the debacle could plainly have been much better handled.

Oppressive solvency regulation also greatly exaggerated subsequent shortfalls by forcing Equitable into a highly restrictive investment strategy. Labour's showpiece regulatory creation cannot entirely escape blame, and indeed it too is said to have been found guilty of key faults in the Ombudsman's findings. Coming on top of the furore over Northern Rock, the timing of the Ombudsman's report is therefore doubly embarrassing for the Government.

Yet it is affordability that is the real problem. As things stand, the Government simply hasn't got the money.

Equitable report is out next week
Ann Abraham's report has faced a number of delays

BBC 9th July, 2008

A report will be published next week that campaigners hope could pave the way for compensation claims of billions of pounds by Equitable Life customers.

The insurer nearly collapsed in 2000, causing a big fall in the value of more than a million UK customers' policies.

Speculation has been swirling about a delayed Parliamentary Ombudsman's report into the government's regulation of Equitable Life.

Wednesday's Daily Telegraph says the report will highlight failings.

The newspaper says it has seen a draft copy of the report, with blame attributed to the Treasury, the Financial Services Authority (FSA) and the Government Actuary's Department. The report will show watchdog bodies were "guilty of maladministration", it says.

A spokesman for the Ombudsman confirmed that the report, which has been delayed, will be published next week, but refused to confirm or deny any of the reports on its contents.

Previous delays

Policyholders of Equitable Life - the world's oldest insurance company - hope the report could pave the way for the government to pay compensation if it is criticised.

But they have been made to wait because of delays in publication of the report, which was originally expected to be published in 2005.

The ombudsman, Ann Abraham, blamed the delay on "substantial representations" received from government bodies in response to her draft report.

This is the second report about Equitable from the Parliamentary Ombudsman.

The Ombudsman's investigation was reopened in 2004

Ms Abraham's first report was published in July 2003, and cleared the FSA of any wrongdoing.

In July 2004 she announced she would reopen her investigation, and focus on the government's role in regulating Equitable.

Equitable closed to new business in 2000, after the House of Lords said it had to honour promises made to pension policyholders, which it could not afford to pay.

This led to more than a million policyholders in the UK and several thousand in Ireland and Germany seeing the value of their policies fall sharply.

In June 2007 the European Parliament called on the UK government to compensate policyholders after a report from MEPs said it had failed to ensure that EU legislation on insurance had been implemented properly.

It also said that the UK's system of financial regulation had been "excessively lenient" in failing to ensure that Equitable was solvent.