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

Documents: 20/04/2006 - John Newman - Q and A

Questions and answers in respect of John Newman’s candidature for election to the Board of the Equitable Life Assurance Society (ELAS or the Society) at the AGM on 17 May 2006.

Why are you standing for election again?

Just as for 2005, I feel I am qualified to assist the Society in moving forward and improving the position for policyholders. This is because over the last five years I have studied and gained a considerable knowledge regarding the Society. Out of personal interest, I have monitored the various reports as and when they came out. I have attended and assisted the Committee of the Equitable Members Action Group (EMAG) over the same period. I joined the Committee in 2004 and in January 2005 I became Vice Chairman of EMAG.

But more than knowledge is needed now to be a worthwhile non-executive director of the Society; I believe I will fulfill a much needed independent representational role for policyholders. In addition to the experience I have gained in over 35 years in the accountancy/taxation profession, I believe I can give guidance on strategy and add fresh input in running the Society forward for the benefit of all members and annuitants.

The current team are responsible for the wasted costs of the misconceived court cases against Ernst & Young and the former directors. Because, in addition, their conduct and actions over the last five years have led to further waste, it is time for a change in my view.

How were you nominated?

I sent out a call for nominations to policyholders who had emailed me in late 2005. They had responded to a note published on the EMAG website following the collapse of the Court case. This asked for views as to whether EMAG should call for an Extraordinary General Meeting. The purpose of such an EGM would be to insist on the resignation of Mr V Treves, the Chairman, and Mr C Thomson, Chief Executive, because of their responsibility for the debacle. Nearly a thousand policyholders responded in four weeks and almost all felt the pair of them should resign as a matter of honour. EMAG considered the matter and decided that calling an EGM would be too costly in the circumstances and the Chairman would probably keep himself in office by the use of proxies.

Five months later neither has resigned and it would seem from the press releases and the accounts that they do not feel in the least apologetic about the costs of their conduct of the misconceived case. So following the adage “if at first you do not succeed”, I decided to stand again for election in January 2006. The policyholders contacted sent the requisite number of completed nomination forms in a matter of days. I have tried to thank the nominators by email but if I have failed in my efforts, again many thanks for the postage and the time cost.

Can we have more detail on why you think you are qualified to do the job?

During my professional career I have had a considerable involvement with the financial services sector my curriculum vitae is posted on the EMAG website. I hope it speaks for itself.

Do you have any chance of election; why did you fail last year?

Yes, I have a real chance. But I will only be elected if enough votes are cast for me, no votes are cast against me and policyholders do not give the Chairman their proxies.

The voting record last year is instructive: 85,561 votes were cast for my election against the Board’s recommendation. However 82,655 votes were cast against me and the Chairman (following his own recommendation) exercised 112,206 proxy votes against me.

This year the voting paper has been redesigned substantially and in a way which deliberately could trap the unwary or unsophisticated into giving the Chairman discretionary use of proxy votes. I do hope policyholders will recognise the position and follow these simple instructions:

Please vote for me in the box against Resolution 4.4.

Please cast votes against ALL the other candidates in the boxes by resolutions 4.1, 4.2, and 4.3 to make your vote more effective.

Whilst you may feel that Messrs Adams and Threadgold have turned up regularly and hence should not be voted off, Mr Thomson has been paid far too much – over £700,000 this year and rising. Do yourself and the other policyholders a favour and make sure you vote against him in the box against resolution 4.2.

What is your comment on the Chairman’s letter of 12 April and the comments in the voting papers sent to policyholders?

The Chairman reiterates that my appointment as a director “would not add significantly to the skills and experience on the Board”. I am glad the Chairman recognises that I would add to the skills and experience of the Board. But the qualification with the word “significantly”, I find hard to accept given the manner that the court case was run at a multi million pound loss, the excessive bonuses for directors, the inaction of the Society and the general waste of money over the last five years.

It seems to me that the simple position is that the Chairman does not want to hear any voice of dissent on the Board. He would certainly not want criticism of his role in allowing the expenditure of over £30m on the misconceived court case. Nor would it seem that the Chief Executive and the Board will want to listen to any comment that their remuneration and bonuses are far too high given their level of achievements.

The Chairman has announced in the accounts papers that two non-executive directors are about to retire later in the year so there is space on the Board! He invites policyholders to apply. Based on my experiences last year when I honestly hoped to reconcile EMAG with the Board of ELAS, I would suggest that ordinary policyholders need not apply. However the Board will waste money in this process on recruitment consultants.

What about the policy for utilisation of proxy votes?

Once again, I think the resolution on my appointment should be a “free” vote, so that if more votes were cast for me then I would be elected. The chairman should cast proxies following the views of the members and renounce his discretionary powers.

Do you have any views on the standard of service?

As I said last year, I hope there are fewer complaints now. I want correspondence to be dealt with satisfactorily. If elected I will, as a non-executive, take a personal interest in this area. I regard it as essential that each policyholder knows where he or she stands. As a Board member I would visit Aylesbury to see the current situation for myself.

Have you any views on the mix of investments?

Yes; for all those policyholders who still have funds with the Society in the with profits fund and for with profits annuitants, the present and seemingly continuing investment policy of almost exclusively bonds, fixed rate and government securities denies them any upside. We have missed out on the stocl exchange recovery. We were promised (Mr Bellringer in 2002) equity investment but this did not happen. The fund will have a low yield in the future, carry a risk of default and still bear the investment management charges appropriate for equities and other securities. This is not what I contracted for. Accordingly I would wish to explore any avenues for separating funds for different categories of investors. I would also press for a reduction in fees for the management of the funds of the Society by HBOS.

Some policyholders will be aware that the Society tendered to buy and redeem the bonds in Equitable Life Finance plc which is a wholly owned subsidiary of the Society. The tender was partially successful at about par value. I suggested that this should be done nearly four years ago in a review of the accounts that was published on the EMAG website at that time. Then the price of the bonds was appropriate for junk paper at 36% of par; this was an opportunity missed.

What are your feelings on Compensation?

Compensation can now only come from the Government or a body controlled by the Government. In my opinion many of the late joiners and the non-GARs were misled on the GAR liability during the conduct of the Court Case and thereafter. But the absence of any material funds for smoothing does mean that the GARs too were also misled at the same time. Since there is, as yet, only one pot in ELAS for compensation (and no ring fence in operation around a particular group of policyholders) the payment of compensation to one class of policyholders is extremely tricky. It inevitably generates a Peter and Paul problem.

Another factor is that the report by Lord Penrose suggested that the Society declared excessive levels of bonus; the result is those that left with full policy values before July 2001 got out with more than their fair share. There is no method to get the overpayments (calculated with the benefit of hindsight) back into the with profits fund.

The methods of obtaining compensation are either legal action or the Financial Ombudsman Service (FOS). I dislike the idea of legal action because of the high cost and the adversarial system, particularly where, as here, the Society is resisting each and every claim made. In addition the Society insists on gagging each claimant when claims are settled. To my mind this inevitably leads to inequitable dealings between policyholders in their various categories. This is wrong and I feel that openness would and should be the Society’s position.

Alternatively the FOS should provide the first move in a dispute with a financial institution such as the Society. The FOS has ruled that those complainants who were late joiners were entitled to compensation above the level suggested by the Society. Regrettably many members have not complained on a timely basis and will miss the compensation. The FOS has also ruled that claims arising from the report of Lord Penrose cannot be dealt with by the FOS. I think this latter ruling is flawed. However the delays that have occurred need addressing at the Society. More cooperation is needed.

One has to be realistic; both these sources of compensation must be limited since they rely on the Society having funds and / or having made adequate provision for the claims.

What about Government compensation?

As above, the major potential source of compensation is the master of the regulatory bodies i.e. ultimately the UK Government in the form of The Treasury. My logic is that policyholders entered into their investments under the mistaken belief that policy values were there in terms of real assets with a smoothing margin and that regulation was in place to ensure this. Simply put, in my view there was inadequate regulation of a structure that was flawed. The situation has strong parallels with the Barlow Clowes affair. Fundamentally therefore I feel that policyholders deserve compensation from the Government. This applies to all members past and present. I cannot see any justification for any being excluded because they got out or cashed out in 2001, 2002 or later. All were misled and therefore deserve appropriate compensation.

Presently it would seem that the routes to Government compensation are the Parliamentary Ombudsman (PO) or the European Parliament / Commission. These are both long hauls, which I discuss below.

Is the Parliamentary Ombudsman process worth bothering with?

Yes, but only because of the bravery of my fellow committee members of EMAG. This is a repeat of what I said last year but is worth saying again. The first report from the PO was flawed, so two EMAG Committee members, Paul Braithwaite and Tom Lake, took the PO to court under the judicial review process. This is a process where the odds are very heavily against the litigant particularly when those litigants are two Davids against the Goliath of a government funded entity. They were successful in getting a second report which has been extended to cover a longer period to December 2001, more Government departments (particularly the Government Actuaries Dept). It also utilises the files and contents of Lord Penrose’s report.

We have every hope this will succeed and will lead to a recommendation for compensation. To ensure this, the PO needs positive help from the Society and this active assistance from ELAS that extends to the investigations cut off date of 1 December 2001. This would cover the period when the current Board took office and enacted the savage policy cuts of July 2001 and the lead up to the Compromise offer. Up to now the Board have been shy about revealing the background for this period.

But a recommendation for compensation, as we have recently seen, may not turn into a monetary award. This will be a long haul.

Why did EMAG petition the European Parliament and what about the Committee of Inquiry?

From the start of the process of trying to understand the accounts and legislation surrounding the operation of the Society, EMAG realised that the legislation was changed in 1992 because of Directives agreed to by the UK Government and Parliament of the day. But the directives had not been properly implemented in the UK. So in December 2004 EMAG utilised the procedures of the European Parliament to lay a Petition before that Parliament. They have now heeded our call to investigate and set up a “Temporary Committee of Inquiry into the Collapse of the Equitable Life Assurance Society.” The chairwoman of the proceedings is an Irish MEP, Mairead McGuiness and it has already met several times: see their website at :


This is, as EMAG has said repeatedly a lengthy, but worthwhile, method of proceeding which we hope will lead to a recommendation for compensation and a solid report from a European perspective. In 2004 EMAG sponsored a resolution at ELAS’s AGM which called for £2m to be placed in trust for EMAG on this campaign inter alia. The resolution was lost with only 20% voting in favour (perhaps because of the Chairman’s use of the proxy votes) but if I am elected as a director I will try to ensure that the European case is properly prosecuted and not ignored. In my view European litigation against the Government is possible and could be more than cost effective given the weight of evidence.

Do you have anything to say about transparency?

This is an overused word much favoured by modern spin doctors and needless to say has been promised at the Society. I have seen no change in the relevant information included in the annual accounts package and no change in the statements sent to members. I would like change so that relevant information, on which decisions could be made, was made available to policyholders.

It is not acceptable that policyholders do not receive a logically explained step by step computation of how their funds are arrived at when they request a valuation; on this I will press for change. It is quite ridiculous that policyholders should have to go to the FOS to force production of such statements.

Apart from the annual statement, the main source of information for policyholders has been the report and accounts and, since 2000, the interim accounts reporting the position for the six months to 30 June. I am an accountant and I admit I did look at the accounts during the 1990s when they came out: I felt the performance of the Society seemed reasonable from the information available. Since 2001, I have looked at the financial statements and the interims with greater care but the opacity of the financial statements has continued: the members are still given the least information possible consistent with the requirements of the legislation on unlimited companies and insurance companies. However, I believe that members are still being misled because the accounts do not show the full picture. I join with Lord Penrose, a fellow accountant, in asking for realistic accounts; the current accounts do not meet my criteria by the way.

To look at my personal position, this year I reach age 60. I have to decide whether to stay in the with profits fund until then, or face a MVA and go earlier. Further, at the contractual date, my birthday, should I leave and opt to transfer my funds? The consensus of external advice seems to be split on staying to age 60 but unanimous that I should then exit. However the accounts, the various related reports and the Society itself are silent on factors which I should take into account on this decision. A realistic projection of future bonuses and growth should now be possible. The Society should come clean on the scope for future profitability in the with profits fund which is essentially a closed fund in run off.

What is your personal position – were you a GAR or what?

I am still a policyholder and probably, with hindsight, I should have moved elsewhere at the outset in the window period between December 2000 and June 2001. My policies are all invested in the with profits fund. In addition, I have fixed term life insurance cover terminating at age 60. The types of with profits policy I held before the compromise were all GAR policies. But, I did not realise that all my policies were GARs until I read the transcript of the Hyman case sometime in late 2000.

For now I have determined not to transfer my funds out of the Society; I have decided to stick with ELAS until I reach 60. This may be the wrong decision, but with the paucity of information it is hard to know what to do for the best.

My father and my father in law are annuitants and with profit annuitants in the Society respectively. I am very mindful of their position and consequently that of other annuitants. I have yet to see any indication that the option of recasting the contracts of with profit annuitants so that they could, as it were, reverse into being normal annuitants has been explored. Similarly, transferring in whole or in part the book of annuities has been brushed over. Finally the impact on annuitants of every policyholder (like myself) withdrawing funds as they come to a contractual event is not spelt out.

What is your position on MVAs, smoothing reserves and the bonus process?

Before the Society closed for business, my “reasonable expectation” was that the amount shown on my annual statement was my share of the with profit funds. I thought that the Society was analogous to a bank or other respectable UK financial institution – where what was shown in the pass book plus interest was there to be withdrawn. The fact that the sum of the numbers shown on the annual statements well exceeded the assets of the Society (even excluding terminal bonuses) was not ascertainable. Had I been asked whether there was a smoothing reserve I would have affirmed this too; but I would have had no clue as to the percentage held in that reserve.

Since 2001 policyholders face Market Value Adjustments (MVAs) when moving their funds from the with profit fund to unit linked funds, converting from a retirement annuity contract to a personal pension plan or taking their funds out before a contractual event. However the MVAs have all been calculated as flat rates and do not recognise timing. I will, if elected, press for an account of the MVAs taken off policyholders’ funds.

This necessarily moves into a discussion on the extent of smoothing reserves; to date there has been no such discussion. The only statement in this area is on the solvency margin and the fund for future appropriations. I would want to see this widened into a clear policy on what is declared as bonus and how this is done. This would clear the air of the charge of over-bonussing once and for all. Now that the fund is to all intents and purposes closed there is no need for the bonuses to be competitive with other financial institutions: what has to happen is that what is earned has to be maximised and then fairly distributed.

What can you say about the case against Ernst & Young and the former directors?

Last year I said on EMAGs website before the AGM, i.e. at the start of the case:

“If the Board of ELAS settled for just costs or the case collapsed during trial, then the honourable course of action for those non-executive director who are lawyers, would be to resign; the Chairman particularly and the Chief executive should do the honourable thing.”

At the AGM I made this point again as I felt this was the probable outcome. This was because I felt then that Ernst & Young, for example, had not caused loss. I felt that, as a layman, I should not publicly challenge the decision to litigate and the form of the litigation on the basis that this might somehow prejudice the result. We were assured by Mr Treves who has had a long career as a city lawyer that the litigation was worthwhile.

I was surprised therefore that the Chairman did not resign in November when he was 65. Legal commentators have been particularly critical of the action which has been described as misconceived. Accordingly I now question his core competence as a corporate lawyer.

The fragility of the case, meant I suppose, that full public disclosure of documentation and explanation of the case as it proceeded did not happen. This is indicative of a culture of non-disclosure at the Society which is worrying.

Will your election to the Board be disruptive?

No; not if the normal rules of corporate life are respected by me, the rest of the Board and the executives of the Society. These rules do include confidentiality – I will not be able to disseminate or broadcast confidential information. I hope to achieve a workable measure of cooperation in moving forward into a rewarding future for policyholders.

For the record I have made it clear to the Board of EMAG that I may resign my position as deputy chairman due to the potential for conflicts.

Can you, finally, summarise your position and your agenda?

I believe I am well qualified to be an independent non-executive director of ELAS from my professional experience and proven expertise.

If elected I will:

  • Support the Committee of Inquiry of the European Parliament and make the European route for compensation from the Government a success.
  • Make sure the Society cooperates with the Parliamentary Ombudsman and if there is a finding of maladministration assists EMAG in obtaining proper compensation for policyholders.
  • Take a personal interest in standards of service at Aylesbury and attack the level of charges for investment management and for policy management from HBOS.
  • Explore separate funds for differing classes of policyholders and investigate if annuitants can transfer or recast their choice of annuity.
  • Make openness in dealing with claims the Society’s policy.
  • Assist the Society to account realistically for its activities and particularly account for MVAs and reconsider the MVA policy.
  • Have full disclosure of documentation and better disclosure of financial information.

2006.04.20 John A Newman