MEPs back compensation for Equitable members

Rupert Jones
Wednesday June 20, 2007
The Guardian

Hundreds of MEPs have backed a damning report on the British government's failure to protect Equitable Life policyholders from the company's financial problems.

After an 18-month inquiry, MEPs in Strasbourg voted by 602 to just 13 for the government to compensate hundreds of thousands of people who lost most or all of their savings in the near-collapse of the life insurer in 2000.

Paul Braithwaite, of the Equitable Members Action Group, said yesterday's events "place a very embarrassing ball in the government's court". He added: "It is a real breakthrough and triumph."

Europe keeps alive hope of compensation

By Elaine Moore, Financial Times
Published: June 23 2007

Investors who lost millions of pounds as a result of the Equitable Life crisis were this week given public backing by MEPs in their crusade for compensation.
Action groups and campaigners have been fighting the government to obtain redress for the money they lost when the life assurer almost collapsed six years ago.

This week 89 per cent of the European Parliament voted in support of a report damning the UK government's handling of the situation and urging it to take responsibility for the remuneration.

Britain's regulatory system took a light touch approach and did not check the growth of the Equitable problems, it says.

Diana Wallis, a Liberal Democrat and author of the report, said regulators in Germany and Ireland did not perform correctly after Equitable Life was allowed to conduct business across European Union borders, and did not enforce the correct levels of consumer protection.

The vote does not mean the UK government will be forced to act, but does keep a spotlight trained on the situation and has been met with optimism by members of Equitable victim action groups.

"It was a gobsmacking success," says Paul Braithwaite of the Equitable members' action group.

"The vote is an overwhelming endorsement from the27 member states for the report and a castigation of the British government's failure to regulate and act upon the scandal in which so many people lost an important part of their pension savings."

He adds: "The ball is now in the government's court to respond to the European Parliament's vote."

A Treasury spokesperson said that the government was considering the European report but would not comment on the findings until the UK parliamentary ombudsman's investigation into the regulation of Equitable Life had been revealed.

The European report also recommends that the UK government accepts the recommendations of the UK ombudsman's long-awaited report.

Just last month the Conservative party accused Gordon Brown of deliberately swamping the ombudsman with new information in order to delay the publication of this report until Brown leaves the Treasury.

A draft copy of the report was sent the Treasury, the Government Actuary's Department and the FSA in January and a large amount of information was subsequently sent back in response.

Ann Abraham, the parliamentary ombudsman, has told MPs that she cannot provide a definite publication date for her report, which she once hoped to complete in 2005.

Many Equitable members hope Abraham will force the government to pay compensation to members.

The life assurer's problems arose as a result of the high level of guaranteed annuity rates it offered to clients when it first began to deal in pensions in the 1950s, 1960s and 1970s.

Customers were able to buy set annuity rates, albeit at a lower level than market annuity rates, linked to their with-profits pension investments.

Decades of increased longevity and falling interest rates then brought market annuity rates down from double digits to mid-single digits, making Equitable's rates much more valuable, and expensive, by comparison.

Equitable subsequently struggled to meet its guaranteed annuity payments and provide other investors with good returns but crucially continued to take on new customers when the problems were already apparent.

Instead, the company tried to offer clients reduced guaranteed annuities until the House of Lords stepped in and prevented them from doing so.

It was only in December 2000 that the company finally closed its doors to new business and put itself up for sale. At this point policyholders saw the value of their retirement funds slashed.

In 2001 the company came up with a plan to increase returns for policyholders if they rescinded their rights to pursue compensation. Customers received an increase in their pension pots but gave away their right to a guaranteed annuity. For many this level of compensation was enough, and the financial ombudsman rejected further claims on the basis that these policyholders had signed away their right to complain.

Not all were left satisfied. The group that has the best chance of compensation is the so-called "late joiners", who invested their money with Equitable when the company knew it was in financial difficulty. These individuals took out policies between 1997 and 2000, when there is the most evidence that the government fell down on its regulatory duties.

Action group members acknowledge that compensation is by no means a safe bet even if the ombudsman does recommend it, but by keeping the pressure up in Brussels and at home, Equitable action groups have at the very least managed to make t

Equitable 'fiasco' under attack

Ian Cowie in the Saturday Telegraph 23rd June, 2007

Government must share blame for scandal, say MEPs.
Ian Cowie reports

The European Parliament intervened to attempt to restore confidence in pensions this week when it voted on the Equitable Life scandal, in which more than 1m savers suffered losses.

A highly critical EU report claimed the British Government failed to ensure that Equitable maintained adequate capital reserves and recommended that compensation should be paid. The motion was supported by 602 Members of the European Parliament, while 13 MEPs voted against and 64 abstained.

Equitable had £34bn funds under management when it closed to new business in December 2000 after extended litigation against its own policyholders. The House of Lords ruled that the life company was wrong to refuse to honour guaranteed annuity rate policies it sold to pension savers between 1957 and 1988.

These promised to pay higher retirement incomes than Equitable was able to deliver in the lower inflation environment of the 1990s. But the company, which used to boast about the high bonuses it paid, had failed to insure against the risk that interest rates would fall.

Liberal Democrat MEP Diana Wallis headed the EU committee of inquiry which reported this week. It found the failure was primarily due to mismanagement by Equitable, but the company had been authorised by the Department of Trade and Industry. Ms Wallis said: "Past governments, Labour and Conservative, must carry a portion of the blame for this fiasco.

"For the victims of the Equitable Life failure, this report delivers an analysis of the UK's flawed process of implementing EU law which, combined with the imminent report of the UK Parliamentary Ombudsman, should act as a pincer movement and deliver compensation to victims."

But the Government has yet to act on earlier criticism by the European Court of Justice concerning its role in the failure of many company pensions, which stripped 125,000 people of their savings. No action on Equitable is likely before the Ombudsman presents her report - postponed three times since it was due in December 2005. It is now expected in October.

A Treasury spokesman said this week: "It would not be appropriate for the Government to comment on the substantive findings made in the EU report, pending the outcome of the Parliamentary Ombudsman's investigation."

Sir Robert Atkins MEP, deputy leader of the Conservatives in the European Parliament, claimed that the British Financial Ombudsman Service failed in its duty to give unbiased support to Equitable's victims.

He added: "Due to its failure to adequately protect policyholders in accordance with EU legislation, the UK Government is obliged to devise an appropriate scheme to ensure full compensation for victims of the debacle. This is imperative if people are to be expected to save judiciously for their retirements."

Paul Braithwaite of the Equitable Members' Action Group said: "The Ombudsman's report has been repeatedly delayed to save the Government from embarrassment, but there can be little more embarrassing than the trouncing it has received from the European Parliament. I hope this report shames them into action."

MEPs back Equitable Life scandal study

Simon Bain in The Herald 20th June, 2007

The European Parliament yesterday defied the UK government's move to wash its hands of the Equitable Life scandal, as it overwhelmingly approved a damning report urging a compensation scheme for one million policyholders.

MEPs voted in Strasbourg by 602 to 13 to approve the report, which said: "In view of the UK government's failure to comply with the requirements of the (European Union's) Third Life Directive, and given the absence either of accessible legal redress through the courts or of effective alternative means of redress, the committee firmly believes the UK government is under an obligation to assume responsibility.

"The committee, therefore, strongly recommends the UK government devise and implement an appropriate scheme with a view to compensating Equitable Life policyholders within the UK, Ireland, Germany and elsewhere."

The report said regulators had "behaved with undue awe or deference towards Equitable Life ... and apparently believed (it) to be too good and too reputable to make mistakes.". This had exacerbated a "weak regulatory environment, which allowed the difficulties at Equitable Life to grow unchecked".

Although the assembly has no funds to compensate policyholders or powers to force the UK government to pay up, the report will add to the pressure likely to be heaped on the government by the Parliamentary Ombudsman Ann Abraham later this year.

Her report has been delayed several times through the "discovery" of vital new documents by government departments, and a Treasury spokesman said yesterday: "It would not be appropriate for the government to comment on the substantive findings made in the report, pending the outcome of the UK Parliamentary Ombudsman's investigation into the regulation of Equitable Life."

The 373-page report's indictment of the government's failure to protect policyholders before and during Equitable's meltdown in 2000 was the culmination of a three-and-a-half year campaign by the 10,000-strong Equitable Members Action Group (Emag), which petitioned the parliament and forced the first EU inquiry of its kind in 10 years.
They failed to explain how many policy holders fell through the cracks

Paul Braithwaite, secretary of Emag, commented yesterday: "The Parliamentary Ombudsman will be heartened by the very strength of these recommendations. It's a very good day for sufferers of Equitable Life."

The EU's 22-strong committee heard from a total of 38 witnesses at 11 public hearings, including evidence last November from The Herald on orchestrated mis-selling by Equitable Life and the discriminatory treatment of complainants.

Leading barrister Lord Neill of Bladen, the former chairman of the Committee of Standards in Public Life, had told the inquiry: "Regulatory bodies are responsible for the dire straits the complainants found themselves in ... The government is using every conceivable excuse to ensure that the Treasury is not liable for compensation."

In a report commissioned by Emag, Neill concluded that the Financial Ombudsman Service had given complainants the impression that it was "not a body which holds the scales of justice evenly".

Senior officials from the Treasury and the Government Actuary's Department, as well as Irish regulators, had all assured MEPs that both UK and Irish governments had complied with EU law in the supervision of the insurer. About 8000 policyholders were squeezed in Ireland and 4000 in Germany, with 15 of the EU's 27 states affected.

The author of the inquiry's resulting report, Liberal Democrat MEP Diana Wallis, however, commented: "They failed to explain how so many policyholders fell through cracks in the system.

"In too many cases, this resulted in a denial of justice, either through complete lack of redress or through the policyholder being cut off by a limitation period."

EU Commissioner Charlie McCreevy said he did not contest the report's findings and next month would announce his Solvency II proposal on how insurers should in future be regulated.