One more heave for the Equitable boulder

Liz Dolan, Sunday Telegraph 12th March, 2006

Heard the latest about Equitable Life?

Readers: Not Equitable Life AGAIN? Can’t you give it a rest?

I know what you mean. I feel like Sisyphus, condemned to push the same boulder up the same hill for eternity. But it has to be done.

Readers: OK, but make it snappy. What’s happened now?

The Parliamentary Ombudsman’s second report on the role of Government regulators, this time including the Department of Trade and Industry, the Treasury and the Government Actuary’s Department, has been delayed for the second time, probably until October.

Readers: Another report? That makes five. Surely, there’s nothing more to say?

Apparently, there is. Vital new evidence has been uncovered, and those involved have been given time to put their side of the story. Too much time, some say, given the new stuff emerged last year. Still, the delay’s good news for ministers.

Readers: Why’s that?

The PO’s separate report on occupational pensions is due on Wednesday. If Ann Abraham (the PO) finds the Government guilty of misleading people into believing their company schemes were safe, the Treasury could face an annual compensation bill of £100m for the next 40 years. If it’s also found guilty of regulatory incompetence at Equitable, the Government could face a further bill of up to £3bn. It would be handy not to have both announcements coming out just before the local elections in May, especially as a European committee is also amassing evidence of the failure of the UK regulatory system to offer sufficient protection to Equitable victims.

Readers: So what are the chances of the PO forcing the Treasury to compensate Equitable victims?

Difficult to say. The regulators certainly appear to have done a pretty lousy job. There’s good reason to believe Equitable’s liabilities weren’t properly covered in the 1990s, but the society was allowed to continue paying unsustainably high bonuses to attract huge amounts of new business throughout the period. The GAD (which is supposed to understand these things) got particularly jumpy at times, but only ever behind closed doors, and never to any effect.

Abraham is the only architect of the various Equitable reports with the power to direct (but not force) the Government to pay compensation, But her previous report on the same subject back in 2003 offers no grounds for optimism. She chose to limit the investigation to one regulator – the Financial Services Authority, which didn’t exist until 1999 – and to a single “test case”, whose subject was never interviewed. The result was a whitewash. She could have achieved more by staying home and knitting blankets for refugees.

Only after the Penrose report uncovered a wealth of disturbing facts in 2004 did Abraham bow to pressure and agree to try again.

Readers: Can the European Parliament force the UK Government to compensate victims?

No, but it can rubbish the UK’s persistent boasts that its regulatory system is superior to that of other European countries. The committee is sitting at the request of the Equitable Members Action Group (EMAG), which also played a vital role in getting Abraham to reopen her investigation.

Readers: Lots of people suffered from the wider with-profits scandal. Why do Equitable’s policyholders think they’re so special?

The regulators turned a blind eye to evidence of scurrilous goings-on at Equitable long before problems started to emerge at other life offices. Also, other companies at least appeared to have sufficient capital to fund liabilities, when Equitable was patently teetering on the edge.

Readers: Thanks, Sisyphus. Hope the boulder gets to the top this time – and stays there.