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Documents: 10/05/2002 - The Rectification Scheme - Comments by Nicholas Bellord

10 May 2002 - The Rectification Scheme - Comments by Nicholas Bellord

Has Lord Browne-Wilkinson, retired Senior Law Lord, overruled the House of Lords?

There is a Rectification Scheme document issued in December 2000. The purpose is to compensate those who had GARs which they converted into annuities prior to the House of Lords judgment but were not given the opportunity to get the full bonus plus the GAR as required by the said judgment.

The interesting point is that the bonus rates from 1994 onwards have apparently been recalculated for this purpose so that the scheme is NOT offering compensation based on "the full bonus plus the GAR as required by the said judgment".

Clause 4 of the Rectification Scheme reads: "The House of Lords' judgment required the Board of the Society to re-exercise its discretion as to the rate of final bonuses to be awarded for those years in which final bonuses were awared at differential rates. As was recognised in the House of Lords, in exercising such discretion, the Board of the Society would not be able to award final bonuses at the higher rate previously made available on GAR policies where benefits were taken at current annuity rates. There is only one with profits fund, and if GAR policyholders are to receive the same level of final bonuses irrespective of the form in which benefits are taken, instead of higher or lower final bonuses depending on the form in which benefits are taken, then the resultant final bonus will necessarily be set at a level somewhere between the two."

Now I can find nothing in the judgment of the HofL to justify the above. In their Originating Summons ELAS asked for various declarations and there were alternatives the third of which might have provided the basis of what ELAS are now doing. However the final words of Lord Steyn were "Given the terms of this judgment I do not consider that any declaratory relief need be granted by this House". So presumably there is no declaratory order?

I have written to ELAS as follows and await a reply:

'Clauses 4 and 5 of the Rectification Scheme refer to "the New Bonus Resolutions". Could you please let me have copies of these resolutions and details of what the underlying calculations are.

Further in clause 4 there is a claim in the 2nd sentence that the House of Lords recognised the need to review the bonuses. I can find nothing in the judgment to justify that claim and indeed the whole purport of the judgment is to say that there cannot be differential bonuses and in particular no revision of the bonus rates which would effectively constitute "ring-fencing". It seems to me that the bonuses vested at April 2000 in my case and there is no case for the Society revising them. I would be interested to have your comments. So as not to waste time I see that the Society might have thought such revision of the bonus rates would be fairer so please do not advance that argument. What I am interested in is why you think you are permitted to revise them in the light of the House of Lords judgment. Perhaps there was some order of the court which I have not seen? '

Before writing the above I had a look again at the judgments in the Court of Appeal and the House of Lords. In the Court of Appeal Waller LJ suggested, in the last para of the report of the Court of Appeal judgment, keeping "that bonus at a level which does not deprive different with-profit policyholders of their equivalent asset share" [2000]2 All ER page 364 d.

However the suggestion of Waller LJ was mere 'obiter dicta' or a suggestion and it was put specifically to the House of Lords who dismissed the idea in the final para of Lord Steyn's judgment. I must say I find Lord Steyn's judgment peculiar. He implies a term into Article 65 but never actually says what that term is in so many words. He says that they must not have a differential bonus dependent upon how the policyholder exercises his option. He says this implied term then means you cannot have differential bonuses at all, but without knowing the exact wording of this implied term it is not possible to judge this. He seems to be more influenced by what results from giving differential bonuses to different kinds of policyholders.

To me it looks as though ELAS are now conducting a ring-fencing exercise which is contrary to the HofL judgment.

What is the effect of this?

I can only speak for my situation which is as follows:

They calculated the fund entitled to GARs in April 2000 when I took the benefits - lets call that A. They then deduct 6.91% of that fund in respect of what they call the New Bonus Resolutions to arrive at B. They then calculate what annuity I would have received using CARs - Current Annuity Rates - on A to arrive at C. They then calculate the annuity using the GAR I would have got on B to arrive at D. Finally they offer me an annuity back-dated to April 2000 with interest being the difference between D and C i.e. D - C. Lets call that E.

Now 6.91% does not sound much but if you do not deduct it the calculation works out so that E would be increased by 61%. That means the total cost of the rectification scheme is reduced by 38% - presumably a not inconsiderable sum.

The Rectification Scheme was submitted to Lord Browne-Wilkinson, retired Senior Law Lord, and Mr Hairs an actuary for their approval and they have approved it - hence my question as to whether Lord Browne-Wilkinson has overridden the House of Lords judgment.

OTHER RELEVANT POINTS:

  1. A further wheeze is that I believe (I have never seen the policy!) that my GAR policy had no provision for a spouse but the offer they have made provides for half the annuity going to my spouse on my death. Sounds generous but does that not in fact mean that they are reducing the cost to themselves even further? What they do is to use part of the fund to provide the spouse annuity at current annuity rates. Now my spouse is only 56 and I suspect that uses up quite a lot of my fund and I therefore only get the GAR rate on the remainder. I suspect that this reduces the cost of the scheme by another 40% or so? However they say I can have a single life annuity and I have asked for a quote.
  2. The Deed of Acceptance which you are required to sign says:

    "It is a condition of the Rectification Scheme that you should demonstrate that you would have taken benefits at policy maturity date in a form to which GARs apply if the applicable New Bonus Resolution had been in force at that time. Accordingly, we reserve the right to seek further information to satisfy ourselves that this condition has been met".

    [Should it read: ...in a form to which GARs apply AS if the applicable...? Bit difficult if you did not know what the New Bonus Resolution was at the time!]

    So you execute the Deed and they then can apply some test and they decide you will not get the benefits of rectification after all. Does the Deed still then stand? What does the above mean anyway? Who can give advice on this?

    I have spoken to ELAS on the phone about this and they say it only applies to policyholders exercising hindsight and relates to 17(b) of the Rectification Scheme. The example given was where a policyholder chose a spouse annuity, the spouse has since died and the policyholder claims to be compensated on the basis of a single life because he will receive more.

    I hope it does mean just that and nothing more; however as drafted it seems very open ended.

  3. In the Deed of Acceptance you have to agree to say: "My acceptance of the Society's offer is in full and final settlement of all claims howsoever arising against the Society in relation to the policy(ies) referred to above. I hereby waive all my rights to make any claim against the Society and any of its directors, employees, members and agents, save for (1) the purposes of enforcing my rights to the benefits under the policy(ies) as amended by my acceptance, and (2) any right which I may have to complain to the PIA Ombudsman (and I confirm that I have no intention to make any such complaint).

    Well I put the proceeds of my GAR and non-GAR policies into a Managed Pension in April 2000 and I am making a claim against the Society in respect of the mis-selling of that policy and I understand that it will be dealt with under the Review. However this clause effectively waives my rights in respect of that claim as the second sentence is not confined to the GAR policies so I do not want to sign the Deed as drafted.

    Further if the review is not to my liking I will go to the PIA (now FOS). Here I am apparently NOT releasing my right to go to him but am declaring that I have no intention of doing so! I have spoken to ELAS about this and they agree it sounds contradictory and will come back to me on this.

    On reflection however perhaps they did mean it that way. It may be that releasing one's right to go to the PIA is not something they can require as being against public policy but in some way they intend to catch you if you do by saying that you have certified you had no intention of doing so.

  4. If you decide to decline their offer you are invited to execute a deed declining the offer and it contains the following clause:

    "My acceptance of the Society's offer is in full and final settlement of all claims howsoever arising against the Society in relation to the policy(ies) referred to above. I hereby waive all my rights to make any claim against the Society and any of its directors, employees, members and agents, in connection with my policy(ies) referred to above save for (1) the purposes of enforcing my rights to the benefits under the policy(ies) and (2) any right which I may make have to complain to the PIA Ombudsman (and I confirm that I have no intention to make any such complaint)."

    Here the loss of rights is confined to the policy in respect of which you are declining the offer and NOT all your policies. However if you are declining their offer I see no need to execute the Deed which gives up your rights with nothing in return.

All of this is my private musings based on what I personally am doing and does not constitute advice to others. Other people's situations will be different. You should take independent legal advice if in doubt as to what this is all about.