EMAG

The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

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Media Stories: 22/07/2008 - Financial Times coverage of PO 2

Financial Times coverage of PO 2

Ghost from 1980s returns to No 10

By George Parker, Political Editor
Wednesday Jul 17th 2008

The parallels with Barlow Clowes are unavoidable and are referred to specifically by Ann Abraham, the parliamentary ombudsman, in her scathing report on "a decade of regulatory failure" at Equitable Life.

The accusations Mr Brown hurled across the despatch box at the Tory government are now being thrown back at him. As more Equitable Life pensioners die, it is still unclear whether a Labour government will eventually apologise and pay up.

Vincent Cable, Liberal Democrat Treasury spokesman, said: "After eight years and 13 reports, it's time for the government to finally admit that it comprehensively failed to regulate Equitable Life properly.

"For years ministers have acted like they were in a castle under siege, hoping that Equitable Life policyholders would give up and go away. Thursday's report shows quite clearly that is not going to happen."

Mr Brown's dilemma is similar to the one that faced Nicholas Ridley, the Tory former trade secretary, who eventually offered £150m in ex-gratia payments to 15,000 Barlow Clowes investors in 1989.

Mr Ridley did not accept the main findings of the ombudsman's report which pinned the blame on the government for failing to spot problems at Barlow Clowes, a Gibraltar-based company promising huge returns on gilt-edged stock.

Mr Brown and Alistair Darling, his successor as chancellor, have so far failed to recognise Ms Abraham's assessment of "serial regulatory failure" in the case of Equitable Life or accepted the case for compensation.

There are several reasons why - apart from the fact the coffers are empty - the Treasury will be reluctant to offer compensation at anything like the £4bn level demanded by policyholders.

If the government accepts liability for regulatory failure in this case, will investors in future believe the taxpayer is standing behind them,provided they can show regulators failed to spot a financial institution getting into trouble?

Ms Abraham says there are "some similarities" with the Northern Rock case. Using her assessment of the Equitable affair, could Rock shareholders similarly demand compensation on the grounds that the Financial Services Authority failed to rein in the bank's reckless business model?

If that were the case, the government might be forced to impose a much tighter regulatory regime to ensure maximum protection for the taxpayer against irresponsible management behaviour.

Philip Dunne, Conservative member of the Commons Treasury select committee, recognises the taxpayer cannot protect investors against all risk, but argues some compensation must be paid to policyholders to reassure savers.

"The signals they would send out if they shilly-shally over compensation would be very serious. It would be another nail in the coffin of the private savings culture in this country," Mr Dunne said.

The government is said to be genuinely undecided how to proceed. However, Mr Brown may now be looking at Mr Ridley's once-derided model - repeated delays, limited compensation and a refusal to set any precedent - with fresh eyes.


A fair result for Equitable Life

Published: July 19 2008

The verdict is stark and damning. A substantial and compelling independent report published this week says that government bodies failed for years in their regulation of Equitable Life. The life assurer almost collapsed eight years ago, leaving more than 1m policyholders with losses. The proper penalty for that failure is less clear-cut.

Ann Abraham, the parliamentary ombudsman and the report's author, says the government should apologise and set up a compensation fund for policyholders. The group campaigning for policyholders claims losses could be £4bn.

It is not the taxpayer's job to offer a complete bail-out for investors who put their money into a financial institution that gets into trouble. This approach would wrongly remove responsibility from financial institutions, advisers and investors themselves to weigh the risks of a particular business model.

There is also a risk that knowing taxpayers might pick up the compensation bill could encourage financial regulators to behave too cautiously. Whatever the changes to the regulatory regime since the Equitable saga, any taxpayer-funded compensation scheme is bound to be prayed in aid by future campaigns to help savers with losses.

We should also remember that the main sources of Equitable's troubles lay in the life assurer itself. This fell outside the remit of this week's report but was extensively catalogued by Lord Penrose four years ago.

If the government had agreed to a single inquiry, it would have been easier to assign responsibility. As it is, ministers should resist any idea that the taxpayer should make up the losses in full. But they should say sorry - often a difficult word for people in power - and fund limited redress.

Assessing the extent of losses attributable to poor regulation will be a hard task. But there are two strong reasons for a government contribution. First, there is the moral case. For years, public bodies allowed Equitable to present a misleading face to the world. Where a government acts as prudential regulator, potential and actual investors should be able to rely on the information it requires. In the case of Equitable, this was not true.

Second, there is a public interest in encouraging people to make long-term financial provision for themselves so that an ageing population looks less to the state for its pension. Contributing to compensation would help to restore public faith in the regulation of long-term savings. Failing to do so would leave everyone the poorer.


Call for an end 'sorry saga'

By Andrew Bolger
Wednesday Jul 16 2008 21:30

Ann Abraham, the ombudsman, makes no estimate of the losses incurred, or the possible cost to the public purse of compensation. But Emag reckons 70 per cent of policyholders would be able to show a relative loss of about £4.5bn.

However, the policyholders fully expect the government to resist calls for compensation and are digging in for a long fight.

"While we hope that parliament will now honour the parliamentary ombudsman's unequivocal recommendation to set up a fund for compensation, we stand prepared to take the government to judicial review if that's what it takes," said the action group.

During the summer parliamentary recess Emag will be organising its members to write to MPs and candidates in marginal constituencies as well as undertaking an extensive lobbying campaign. It has set up a network of 20 regional groups to co-ordinate campaigning in those areas. Since it was launched last week, more than 700 people have joined the regional campaign.

"We want to ensure that the Equitable scandal becomes an embarrassing election issue" said Mr Braithwaite. "If we can hit them where it hurts in the marginals, perhaps at last the government will start listening to the understandably aggrieved victims."

Emag said the government's repeated assertion that Equitable's policyholders were "well-heeled" was not borne out by the facts. It said the average individual pension pot was just £46,000 - enough to buy a pension of less than £70 a week. The group said the cost of compensation would be roughly equivalent to the amount lost each year by the Treasury through benefit fraud, benefit error, tax credit fraud and tax credit overpayment - totalling £4.2bn.


Losses at Equitable 'down to regulators'

By George Parker and Andrea Felsted

Published: July 17 2008 03:00 | Last updated: July 17 2008 03:0More than a million Equitable Life policyholders were the victims of "a decade of regulatory failure" and should be compensated, according to a damning report that raises questions about the extent to which the taxpayer should stand behind investors.

Ann Abraham, parliamentary ombudsman, chronicles "serial regulatory failure" and urges the government to apologise to policyholders and to compensate them for losses after Equitable almost collapsed eight years ago.

Alistair Darling, chancellor, will not respond formally until the autumn, but is not expected to offer anything like the £4bn of losses claimed by policyholders. Ms Abraham says compensation should be determined by individual circumstances.

But Treasury lawyers will be concerned about the precedent if Mr Darling were to accept Ms Abraham's conclusion that the taxpayer should pay up if a regulator fails to stop a financial institution getting into trouble.

Ms Abraham says the Equitable Life case "shares some similarities with the current example of Northern Rock"; a view that has rung alarm bells at the Treasury. Regulatory failure has been blamed for failing to identify Northern Rock's flawed business model and the bank's shareholders are seeking redress.

If Mr Darling accepts the principle that the taxpayer should compensate losses that can be traced to some regulatory failure, there are fears it could shift riskunacceptably from investors and management to the taxpayer.

There could then be pressure for a tighter system of City regulation in an attempt to protect the public purse more effectively from irresponsible managers.

However, Mr Darling will face fierce pressure to offer com-pensation to Equitable policyholders. George Osborne, shadow chancellor, said Mr Darling should apologise and form a payment scheme. "If he doesn't, we will," he said.

Mr Darling may be forced to set up a compensation scheme, but lawyers will want to establish whether losses were attributable directly to any regulatory failure; Equitable's performance was not "worst in class".

Ms Abraham's report finds 10 cases of maladministration by the former Department of Trade and Industry, the government actuary's department and the Financial Services Authority.

Her finding spans Conservative and Labour governments in the decade to December 2001.

Ms Abraham concludes the failings were not due to the system of regulation in place at the time - the framework dating back to 1982 has been widely criticised - but was the fault of the regulators themselves.

Mr Darling will announce in the autumn whether he shares her view there should be "compensation to remedy any financial losses which would not have been suffered had those people invested elsewhere . . ."

Officials insist he has not yet made up his mind.


Pay Equitable's policyholders and put this behind us

By Andrew Hill
Published: July 17 2008

Are we nearly there yet? After eight years and endless inquiries, publication of the parliamentary ombudsman's report into the Equitable Life affair will raise weary policyholders' hopes that the destination is in sight.

If only. They will have to wait until after Alistair Darling's summer holiday for his decision on whether to accept Ann Abraham's recommendation that government should pay up and - horror! - apologise. At that point, the ombudsman believes itwill take no more than six months to set up a scheme to assess policyholders' claims and pay compensation within two years. Fat chance. If 1m customers were to apply, the new tribunal would have to process nearly 2,000 claims each working day to meet the deadline.

You do not have to be a trained cynic to see in the delays and deferrals of the past eight years a repellent - and, alas, successful - political attempt to put off the final assessment of who did what to whom. Ms Abraham calls this a "piecemeal approach". That's charitable. At every turn, ministers have pounced on the politically helpful conclusions of the investigations (from the 2004 Penrose report: Equitable was "the author of its own misfortunes") and ignored the awkward ones (Penrose again: regulators were "complacent, lacking challenge and hesitant in criticism"). No wonder the ombudsman subtitles her report "A Decade of Regulatory Failure": there's no dodging that accusation.

By procrastinating, however, the government has itself become the author of its own misfortune. The economic crisis has made it more difficult to meet compensation claims, and Ms Abraham has been able to draw direct parallels between the regulatory failings over Equitable and the embarrassing shortcomings in the supervision of Northern Rock that haunt the Treasury, Financial Services Authority and Bank of England.

According to a harsh interpretation, of course, many Equitable customers simply failed to keep a close eye on their chosen investments. The risk of setting a precedent for compensation in other crises, the Rock included, is also a real one.

So should taxpayers be forced to pay at least some of the claims? Yes, because if policyholders' clamour were again ignored, the consequences would be even worse. First, the fragile credibility of the government would be further damaged. Second, the credibility of the ombudsman would be shattered. Third, and most important, the credibility of the long-term savings industry would suffer. It is too late for government and regulators to make their peace with Equitable's policyholders. But with the ambitious government-run national pension saving scheme under construction, it would be tragic if further wrangling over Equitable Life undermined the confidence of younger generations of potential savers and investors.


Pay Equitable’s policyholders and put this behind us

By Andrew Hill, July 16

Are we nearly there yet? After eight years and endless inquiries, publication of the parliamentary ombudsman’s report into the Equitable Life affair will raise weary policyholders’ hopes that the destination is in sight.

If only. They will have to wait until after Alistair Darling’s summer holiday for his decision on whether to accept Ann Abraham’s recommendation that government should pay up and – horror! – apologise. At that point, the ombudsman believes it will take no more than six months to set up a scheme to assess policyholders’ claims and pay compensation within two years. Fat chance. If 1m customers were to apply, the new tribunal would have to process nearly 2,000 claims each working day to meet the deadline.

You do not have to be a trained cynic to see in the delays and deferrals of the past eight years a repellent – and, alas, successful – political attempt to put off the final assessment of who did what to whom. Ms Abraham calls this a “piecemeal approach”. That’s charitable. At every turn, ministers have pounced on the politically helpful conclusions of the investigations (from the 2004 Penrose report: Equitable was “the author of its own misfortunes”) and ignored the awkward ones (Penrose again: regulators were “complacent, lacking challenge and hesitant in criticism”). No wonder the ombudsman subtitles her report “A Decade of Regulatory Failure”: there’s no dodging that accusation.

By procrastinating, however, the government has itself become the author of its own misfortune. The economic crisis has made it more difficult to meet compensation claims, and Ms Abraham has been able to draw direct parallels between the regulatory failings over Equitable and the embarrassing shortcomings in the supervision of Northern Rock that haunt the Treasury, Financial Services Authority and Bank of England.

According to a harsh interpretation, of course, many Equitable customers simply failed to keep a close eye on their chosen investments. The risk of setting a precedent for compensation in other crises, the Rock included, is also a real one.

So should taxpayers be forced to pay at least some of the claims? Yes, because if policyholders’ clamour were again ignored, the consequences would be even worse. First, the fragile credibility of the government would be further damaged. Second, the credibility of the ombudsman would be shattered. Third, and most important, the credibility of the long-term savings industry would suffer. It is too late for government and regulators to make their peace with Equitable’s policyholders. But with the ambitious government-run national pension saving scheme under construction, it would be tragic if further wrangling over Equitable Life undermined the confidence of younger generations of potential savers and investors.