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: 14/11/2003 - Letter From Paul Braithwaite to John Tiner

Letter From Paul Braithwaite to John Tiner - 14 November '03

Mr John Tiner,
Managing Director,
The Financial Services Authority,
25 The North Colonnade,
Canary Wharf,
London E14 5HS
42, Bartholomew Villas
Kentish Town
London NW5 2LL

14th November, 2003

Dear Mr Tiner,

EMAG's concern about the FSA's involvement in Equitable Life:

EMAG continues to be most concerned at the FSA's apparently incestuous relationship with the board (and the running) of Equitable Life.

In the parliamentary debate on November 4th, the Liberal Democrat shadow chancellor, Dr Vincent Cable, expressed the view that the FSA appears to be acting as a shadow director. EMAG shares his concern. I append the relevant extract from Hansard.

For a year the Society has had 800 million (enhanced by a further 47 million in the latest interim accounts) set aside in provisions to redress a variety of categories of recognised legitimate claims. But, virtually no payments have been made during that time - this, apparently, with the FSA's knowledge and blessing.

Explicitly, The House of Lords demanded rectification for GARs more than three years ago. By summer 2002 just 3,000 people had received compensation under the independently prepared rectification scheme, before the current ELAS board froze that scheme as being too generous. Further, many of the remaining 20,000 annuitants who had previously received confirmation letters that they qualified for compensation, were simply astounded to receive a letter last autumn rescinding. For more than one year NONE of these GAR rectification cases has been progressed, despite an average policyholder age approaching 80.

This intolerable suspension has not provoked any intervention by the FSA and the Society is still saying that a less generous replacement scheme will be announced 'soon'. Meanwhile, many of those annuitants with legitimate entitlement are either wearily giving up on what is their right in despair or dying.

Similarly, of the order of 50,000 managed pension policies were possibly mis-sold and a provision has been set aside which, combined with the above GAR rectification, makes a total provision of 440 million. Yet the FSA condones the Society's inaction and has granted a waiver allowing the Society until the end of 2004 to redress these cases. Very, very few have received compensation. WHY?

The Society's new interim accounts are obfuscated, again. The headline claim of "cautious optimism" is grossly misleading, particularly to the unfortunate locked-in annuitants who now represent half of the W P fund. Nowhere in the 17 page report are the owners of the mutual informed of the three prime numbers: The value of the W P fund, the total of provisions (believed to be 11.6bn and 846 million) and the percentage return on the W P fund during the first half of 2003.

The Society only achieves ANY excess of net assets over RMM by 'smoke and mirrors'. 334m of the 346m subordinated debt is shown as an asset, with no balancing item of debt, yet tthis loan is repayable in 2007. Further, the accounts incorporate into assets fully 150 million of future profits. This, in a closed fund in run-off, with just 4% in equities! Effectively, all incomes from gilts and bonds, which are exposed to the risk of interest rate rises, are earmarked to service the 3.5% GIR commitment on 80% of the WP fund. The report admits that Equitable WILL possibly breach technical solvency again, yet it intimates - presumably with FSA consent - that the FSA will again grant a waiver. WHY?

Also of concern is the constant stream of complaints EMAG receives on a subject that has been raised before by EMAG's chairman, Alex Henney (Nov 12th, 2002). You were indifferent then but he took his case to the FOS, which resulted in a satisfactory outcome with the Society providing a full explanation of the basis of calculations. The Society should, of course, provide the basis of its calculation of revised with profits annuities and of transfer values elsewhere, but Equitable continues to refuse all such requests.

Here is a verbatim quote from a very recent letter from the Society:

"'I am sorry that we are not in a position to provide individually worked calculations for policyholders. The Society uses an automated system to calculate values by computer program. Whilst this provides an accurate and efficient method of calculating values, it is not designed to produce worked calculations in written form. Developing a computer system to do that or, alternately, reproducing the calculations manually, would be expensive and make significant demands on the Society's resources.

May we remind you, from the FSA's own website:

"Under the FSA's rules, firms have a duty to treat their customers fairly and the FSA has powers to intervene if it believes that that duty is not being met. The FSA monitors Equitable Life with the aim of ensuring that it complies with the FSA rules."

On behalf of policyholders, we ask the FSA to stop 'sitting on its hands' and immediately intervene to compel the Society to make FAST progress with ALL its outstanding compensation schemes. It appears that the FSA is party to an alliance with ELAS to maximise retention of funds set aside for compensation.

Yours sincerely,

Paul Braithwaite
General secretary, EMAG
Cc Dr Vincent Cable
EMAG website

Appendix to letter from EMAG to John Tiner 14th Nov, 2003:
Extract from Hansard. Debate on Equitable in Westminster Hall 4th November, 2003

Vincent Cable:

It (the FSA) appears to be acting as a kind of shadow director: it has regulatory responsibility for the rump company and things are happening that are of great concern to policyholders and to our constituents. As I understand the present position, there is an assumption-indeed, an agreement-that something in the order of 900 million will be paid out in compensation to various aggrieved groups, including several thousand people who were mis-sold managed pensions, many of whom were effectively cheated out of their GAR policies. There is an understanding that they will be compensated, but they have not been paid yet; the potential beneficiaries do not expect to be paid at least until the end of next year. What is the FSA's role in all that? Is it encouraging Equitable Life to achieve a prompt settlement? Is it doing nothing? How does it define its current responsibilities?

...I believe that the FSA is turning a blind eye to what is happening and leaving Equitable Life to make the decisions itself, even though there is a public policy interest involved.