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

Correspondence: 08/01/2004 - Letter from EMAG to all each MP

8 January '04 - Letter from EMAG to all each MP

House of Commons
London SW1A 0AA

8th January 2004
42 Bartholomew Villas
Kentish Town
London NW5 2LL


Re: Lord Penrose Inquiry report into the Equitable Life

Lord Penrose has now submitted his report to the Treasury. No doubt there will be enormous pressure behind those walls to keep the financial consequences to a minimum when the report is published, but, on behalf of the Equitable Members' Action Group (EMAG), I urge you and your fellow MPs to consider comprehensive compensation as both the honourable and, in the long-term, the least expensive way forward.

On the assumption that Lord Penrose's report will find that serious regulatory failure has occurred going back to the 1980s, EMAG believes that Gordon Brown should adopt the same laudable moral position that he took on Barlow Clowes back in 1989, when he spoke unequivocally about the duties of both government and regulators. Thus far, he has yet to make any public statement on this much larger scandal affecting a million prudent savers who, unlike in the case of Barlow Clowes, had no possible way of knowing what lay beneath in the Equitable Life fiasco.

The Treasury will be tempted to hold firm, to not create any precedent and to continue to tough it out. For three years, there has been a strategy by the government to knock Equitable Life into deep field in the hope that it will go away. But it has not and it will not. Rather, Equitable Life has remained at the centre of the crisis of confidence in pensions and regulation. The pretence has been maintained that it's been an unfortunate, recent coincidence of stock markets, the House of Lords ruling and poor management, and as such is no business of government. But ALL citizens, including very many of your constituents, have a right to believe that the words "Regulated by…." mean real, tangible protection.

Within the EU the responsibilities of the national regulators are regarded as arduous and the cop-out concept of "light touch regulation" is not accepted. The UK is obliged, through an agreed process of harmonisation, to progress towards a unified system of EU regulation. Already, Brussels and Strasbourg are beginning to take an interest in Equitable Life and it is feasible that the European Parliament may investigate if the situation continues to leave thousands feeling a deep sense of injustice at the hands of the UK regulators.

On November 30th EMAG wrote to Chancellor Brown. The letter pointed out:

"Regulatory failure occurred over an extended period, under a series of regulatory regimes and under governments of both political complexions.

The plethora of toothless investigations, the obfuscation of the current Equitable Board and the Financial Services Authority, the 3-year delay and the 'hand-wringing' attitude of Treasury Ministers has, thus far, deferred any cost to the Treasury. However, they have inflicted a major blow to confidence in pensions investment, and in the effectiveness of regulation. Without remedial, decisive action this will ultimately prove much more costly to the Treasury in increasing Social Security payments and declining taxation revenue from both pension funds themselves and the companies and individuals that comprise the industry.

In the light of the Penrose report, EMAG requests that you give serious consideration to the payment of government compensation to Equitable Life policyholders:
  1. In fairness to those that lost a significant proportion of their pension funds because the regulators failed investors.
  2. To demonstrate the government's commitment to prudent individuals providing for their own old age.
  3. Allowance can be made for the extent to which those policy values themselves comprised excessive bonuses.
  4. A fair and relatively simple compensation formula can be constructed, based upon each policy's terminal bonus content at 31st December 2000."
A "rescue lite" deal with the Equitable Life's board to prop up what remains of the with-profits fund - not least to let the FSA off the hook - might appear attractive, but hundreds of thousands of policyholders were deeply financially burned. The majority of them sensibly mitigated their losses by moving pension provider, most suffering additional transfer penalties of between 7.5% and 20%. That act of self-protection, in the notable absence of any guidance whatsoever from the FSA, should not, in EMAG's opinion, exclude those policyholders from compensation.

The Treasury will no doubt argue that the Equitable Life paid generous bonuses in the early years and that is true - too generous. But those bonuses, in excess of asset share, were only ever paid out to policyholders who left or took their pensions before the Equitable Life scandal had surfaced and the savage cuts were made to policy values.

The reality is that approaching two thirds of Equitable Life's £27 billion with-profits fund, at the time of its closure, was money paid in from 1995 and terminal bonuses back to that time have been wiped out. The Society had been allowed, through years of regulatory negligence, to build up not a smoothing kitty, as expected, but a massive accumulated shortfall of assets of at least £3 billion by the time it closed its doors in December 2000, despite the FTSE 100 then being near the top of the nine year bull market, at 6288.

As a consequence of the overdue devastating devaluation of 16% on all total policy values in July 2001, EMAG estimates that only approximately one in five of Equitable Life's 800,000 non-GAR policyholders still in the Society at that time achieved even a 5% cumulative return from Equitable Life and many investors joining after 1997 show capital losses on their savings. I would stress that this was the position BEFORE the two subsequent policy value cuts, which can be attributed to stock market falls. Talk of reasonable returns is, therefore, very far from true for the vast majority of policyholders.

EMAG's letter to Gordon Brown ended:

"EMAG is trusted as a forthright and responsible organisation that speaks up fairly and consistently for ALL types of Equitable policyholders, past and present. As such, EMAG is well placed to advise on the FAIR distribution of compensation in a way that, unfortunately, the board of Equitable Life is not. EMAG offers to aid the Society and the FSA in the fair administration of an organised government compensation scheme.

To own up and pay up when regulators fail will prove to be the better course in the long term because without it, confidence will not return."

EMAG has just prepared a report on the effects of the Equitable Life scandal for the Treasury Select Committee's investigation into: "Restoring confidence in long-term savings". This submission, and the recent well-regarded EMAG 26 page publication "The Alternative Penrose Report", is available to all MPs on request.

The Equitable Life scandal has affected many thousands of people across the country from all walks of life. It is not a party political matter. We are therefore seeking the help of all MPs. I ask you, please, to write immediately on behalf of your constituents to Gordon Brown, to remind him of his decent, heartfelt words on Barlow Clowes (see attached appendix) and to encourage him to demonstrate that this government has the integrity to put up its hand and not flinch from paying up, if Lord Penrose's report concludes as expected, that regulators failed Equitable Life's policyholders.

This will rebuild long-term confidence in financial services and the regulator, which cannot possibly be the outcome of a face-saving fudge. Recompense for victims of the Equitable Life fiasco is overdue and Lord Penrose's report provides the opportunity for the government to do the right thing.

Yours sincerely,

Paul Braithwaite
General secretary of EMAG
For further information, see: www.emag.org.uk


Extracts from a speech by Gordon Brown on 18th Dec, 1989 about compensating Barlow Clowes investors:

"I must ask why we have had to rely on the ombudsman to confirm the mismanagement, maladministration and incompetence that was widely known about more than one year ago. Will the Secretary of State explain--I acknowledge that he was not the Secretary of State at the time--why it took an internal inquiry, a departmental inquiry and now the ombudsman's investigation, instigated by my right hon. Friend the Leader of the Opposition, before justice began to be done?

Will he (the Secretary of State) confirm that, while the need for compensation is agreed, the reason for the payment of this public money--our public money-- is not the fecklessness, gullibility or incompetence of the small investors but 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?

Will the Secretary of State confirm that the ombudsman's conclusion is that mismanagement happened throughout the 1980s, not just in 1985 and afterwards, when the firm was licensed and re-licensed?

Will the Secretary of State demonstrate that his aim is not just to lure investors into the market place but that he regards it as his duty to give them proper protection from the unprincipled and the unscrupulous?

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And, about this precedent, a Leader from the Daily Telegraph,
1st November, 2003

Like Barlow Clowes, Equitable was authorised by a series of regulators throughout the period between 1956 and 1988 when it sold the policies that ruined it. These promised pensions it could not afford to pay. Like Barlow Clowes, Equitable investors can argue that regulators should have seen this was an insurer with no insurance against the risk that markets might move against it.

Now, as then, the Government will be in no rush to accept the massive cost of clearing up this mess. But it is inconceivable that Lord Penrose will fail to criticise the role of the regulators. When the Parliamentary Ombudsman did so in December 1989, Nicholas Ridley announced payments of £150 million to 18,000 Barlow Clowes investors.

Gordon Brown was first on his feet that day to criticise the then government for delaying payments to the distressed, elderly savers.

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