21 July 2008 - Press Coverage of PO2

The long list of shame at Equitable...

Mail on Sunday 20th July, 2008
Jeff Prestridge, Financial Mail Personal Finance Editor

For the past four years, from her eyrie on the 20th floor of Millbank Tower near Parliament, Ann Abraham has been putting together one of the most devastating critiques ever compiled on UK regulatory failure.

Last week, the Parliamentary Ombudsman finally published her 2,800-page tome into systemic regulatory failure at Equitable Life.

It highlights failure that allowed the insurance giant to continue taking new business when it was effectively bankrupt, failure that allowed it to be run like a financial dictatorship and failure that ruined the retirement prospects of hundreds of thousands.

People were deceived into taking out Equitable policies, believing that the insurer was better than the rest when nothing was further from the truth. Effective regulation would never have allowed Equitable to get away with this falsehood.

Abraham's report is magnificent in terms of its depth and breadth. If the financial regulators showed half of the passion for the truth as Abraham does and a smidgen of her diligence, we certainly would not be in the mess we are in today - where the reputations of the Financial Services Authority and the financial services industry remain in tatters and trust in both is broken.

Last week, I forecast that Abraham's report into regulatory maladministration at Equitable would be 'damning'. I apologise. I got it wrong. Damning was a gross understatement.

Abraham established beyond doubt that the then Department of Trade and Industry, the Government's Actuary's Department and the Financial Services Authority were all asleep at the wheel for most of the Nineties and especially as Equitable teetered on the edge of financial ruin prior to its closure to new business in December 2000.

The list of regulatory shame is exhaustive. In the Nineties there was the regulator's failure to question the affordability of the attractive bonuses that Equitable kept adding to policyholders' retirement plans - bonuses better than rivals' and bonuses that meant Equitable was never short of new customers.

There was also the regulator's failure to get Equitable to provide it with complete financial information, thereby enabling the insurer to present itself as financially stronger than it really was.

Then there was the regulator's inability to rein in the power of chief executive Roy Ranson, who at the same time as being boss was allowed to wear the society's appointed actuary hat.

The appointed actuary's duty is to protect the interests of policyholders. The regulator allowed Ranson to reign supreme - both judge and jury - with no checks in place.

In the years immediately before the society's closure to new business, the regulator allowed the insurer to declare bonuses it could not afford and to continue to issue misleading financial returns. New customers were hoodwinked.

Abraham believes policyholders are due both an apology from the Government and compensation.

Last Thursday, I was contacted by long-standing Equitable customer Tony Fisk, 78, who has seen his retirement income cut by 50% as a result of the problems at Equitable. Former businessman-Tony, from Southend-on-Sea, Essex, piled most of his life savings into Equitable before converting his pensions into Equitable withprofits annuities. Paying annual income of £32,000 in 2000, they now provide him with £16,000 and there is little prospect of his income payments increasing.

On the issue of compensation, the Government has said nothing other than it will respond to the report in the autumn, but it has known what has been contained in Abraham's report for months. It is simply playing for time.

Equitable customers deserve much better. The Government should apologise immediately and then agree to hand over compensation.

Readers who agree should write to their MP urging them to call on the Government to pay up.

Equitable settlement ‘no guarantee’ of compensation

The Herald, SIMON BAIN July 21 2008

Equitable Life policyholders may have to go to court to force the government to pay fair compensation, according to lawyers who took on Equitable Life and won.

Law firm Clarke Wilmott, which has been pursuing claims on behalf of policyholders since 2002, has warned that despite last week's devastating 2800-page critique by the Parliamentary Ombudsman Ann Abraham, there is still "no guarantee that the government will put in place a compensation scheme and, even if it did, no guidance as to how any such scheme would work".

After a legal battle with Equitable lasting three-and-a-half years, the firm last December won a confidential settlement for a group of 400 holders of with-profits annuities, who had paid £1000 each to join a group action. Some 50,000 other annuitants in similar circumstances, however, whose policies were transferred to the Prudential last year, missed out on any compensation.

Similarly, in 2003, the 190 members of the Equitable Late Joiners Action Group won what was said to be a generous (also confidential) settlement after presenting Equitable with a damning legal opinion on how it had continued to sell policies from 1998 onwards despite knowing its potential liabilities.

Yet the 16,000 others who joined the society after 1998, and the hundreds of thousands who made fresh contributions, remain uncompensated despite Abraham's shock finding that the Financial Services Authority had issued "misleading" information about the society's position.

Paul Chapman, partner at Clarke Wilmott, said: "If the government does not promptly agree to meet its responsibilities, policyholders should give serious consideration to legal action. This would be either to force a proper implementation of the recommendations or to bring a more wide-ranging legal claim based on the government's failure to comply with its EU obligations regarding financial regulation."

The Equitable Members Action Group (Emag) has already signalled that it stands ready to fund a petition for judicial review of the government's actions if it fails to set up a compensation scheme. In 2004, Emag launched a similar petition for review of the first report by the parliamentary ombudsman, which had exonerated the regulators. (Abraham said last week that the limited remit given her at the time by HM Treasury was "iniquitous".) A judicial review last year of the government's failure to uphold the ombudsman's report on compensating the victims of lost occupational pensions achieved eventual success, following a petition to the High Court by four pensioners with the backing of campaigner Ros Altmann and law firm Bindmans.

Chapman said that even if a compensation scheme were set up, there would be "arguments over whether particular individuals are entitled to claim in respect of the categories identified and also how their undoubted financial loss should be quantified".

He added: "This is particularly so for policyholders who purchased with-profits annuities." This was because calculations for any given time hinged on Equitable's true solvency.

According to the Clarke Wilmott analysis, the policyholders who Abraham believed should be compensated fall into five categories.

They include any policyholders who relied on Equitable's financial returns from 1990 to 1996; any policyholders who lost opportunities between July 1991 and April 1999 to make informed decisions because they did not know the extent of and the risks caused by the Equitable's liabilities for its Guaranteed Annuity Rates (GARs); any policyholders who have suffered a financial loss having joined Equitable or paid new non-contractual premiums after May 1, 1999 - the date from which Equitable's financial position was bolstered by a reinsurance arrangement which had no real effect - or who lost opportunities as a result; any policyholders who in 2000-01 relied on misleading information from the Financial Services Authority on Equitable's solvency and regulatory compliance; and "any policyholders who have suffered a sense of outrage as a result of the serial regulatory failure".

Peter Metcalf, an East Lothian businessman and member of Emag, said at the weekend: "I had planned for many years to be in a position to retire at 50, I am now 57 and still working.

"I wanted to make sure I was doing the right thing, having seen what happened with Robert Maxwell, and I was reassured that the FSA was now making sure it would never happen again."

Metcalf carried out his own detailed research into Equitable before investing in the 1990s.

"It was being audited by Ernst & Young, it had been going for 200 years, and it had a low expense ratio as they made a big thing about not paying commission to representatives, and its client base was directors of Ernst & Young, solicitors, judges and professional people who had done their research like I had."

On whether compensation will be paid, Metcalf added: "There is going to be a lot of pressureperhaps we will have to bear our bodies in public like the other (occupational) pensioners did."

The final judgment: regulators, too, were far from Equitable

Ruth Sunderland, The Observer, Sunday 20th July

It was worth the wait.

The Parliamentary Ombudsman's report into Equitable Life, which has taken four years to see the light of day, found catastrophic failure on the part of government regulators over a decade and has recommended an apology and a government compensation scheme.

The specific findings of the Ombudsman, Ann Abraham, are damning. In the run-up to the crisis, the regulators were 'passive, reactive and complacent', failing to question Equitable's annual returns, failing to resolve issues over its solvency and failing to establish how it could afford to pay out bonuses. They also allowed its then boss, Roy Ranson, to run the company as a personal fiefdom.

From 1998 to the end of 2000, when Equitable closed its doors, they were aware of problems but their actions were 'largely ineffective and inappropriate,' and they allowed the insurer to remain open on an unsound basis. They let it submit misleading returns, in which its apparent solvency position was flattered by a reinsurance deal which had 'no economic substance at all'.

Most shocking, during 2001 the regulators gave a misleading impression to policyholders and the public by falsely stating that Equitable had always been solvent for regulatory purposes and by giving assurances that it had always met its other regulatory requirements.

I can personally vouch for their complacency: at a lunch only days before the insurer shut up shop, I was shocked when one senior official opined that this would not be such a terrible outcome for savers.

Seemingly, he was impervious to the damage this would cause not only to individual victims, but also to wider public confidence in pensions savings.

Alistair Darling will not respond formally to the report until the autumn but the attitude of this government has been to resist claims for compensation, and to imply that the policyholders were 'well-heeled' and so somehow undeserving - an oddly Old Labour slant on the affair. The company, this argument goes, brought about its own misfortunes, so taxpayers should not be forced to pay for it.

The men who ran Equitable were indeed primarily responsible, though the regulators have let them escape relatively lightly. Ranson was expelled from the actuarial profession last year, but he is in his late seventies and entitled to a substantial free pension from his former employer. On account of his age, he was not punished by the Financial Services Authority.

His lieutenant, Chris Headdon, is serving a six-year ban meted out by the FSA from holding a senior position in the financial services industry. It expires in 2010, quite possibly sooner than the victims will receive payouts. He will be in his early fifties, still young enough to make more money to add to the £95,000 pension he is due to receive from the Equitable staff scheme.

It is true that it will be hard - very hard - for the government to find the £4.6bn or so that policyholder action groups reckon will be needed to pay compensation. The budget deficit for last month was the worst June figure ever recorded, and people are questioning whether the Equitable victims are the most deserving recipients of scarce cash. My view is that compensation should be paid, despite the obvious difficulties.

First, the notion that all Equitable customers are wealthy is not true. The average policy was enough to buy a pension of just £70 a week, not riches beyond the dreams of avarice. If some savers are a bit posh, so what? It doesn't make the persistent failures of the regulators more acceptable. Do people really believe it is OK for City regulators to fail horribly, and for the government to ignore the Ombudsman, so long as wrongdoers only milk the middle class?

Second, the government is not being asked to bail out investors because of the misdeeds of the insurer's management, which would be morally hazardous, but because of the inadequacies of its own departments and regulatory bodies.

Third, if ministers defy the Ombudsman, who provides a vital safeguard for the public, that will be an outrageous show of contempt for her office and its role in holding governments to account. It hardly encourages better regulation in the City if the government flouts its own watchdog.

Equitable holders face delay in cash fight

Daily Mail, Simon English 17th July

Equitable Life policyholders can expect to wait at least three years before they receive even a slice of the compensation they hope to get from the Government following the collapse of the insurer.

Campaigners who have been pursuing the issue for the past eight years admit that more battles - probably in court - are likely, despite the call from the Parliamentary Ombudsman for a speedy resolution to the issue.

The final report into the UK insurance industry's worst failure, published yesterday, advocated that ministers set up a fund for the million-plus customers who saw their pensions devastated.

Ann Abraham, the Ombudsman, said the DTI, the Government's Actuary Department and the Financial Services Authority failed to use the powers available to them to protect Equitable's customers. It was 'a decade of regulatory failure' that should lead to compensation payments, she argued.

The Equitable Members Action Group claims £4.65bn was lost by 1.5m policyholders. But with Government finances in disarray, it seems unlikely that anything like this will be paid.

The group, led by Paul Braithwaite, pledged to continue the fight by making the Equitable scandal an election issue. But he concedes they may have to wait for a new government before anything is paid out. Pensioners' relatives are already gearing up to pursue claims if the policyholder dies before a deal is cut.

Braithwaite said: 'Thousands of pensioners have died waiting for justice. It's time the Government stopped hiding behind one inquiry after another and did the moral thing.'

The campaigners say watchdogs were aware in the early 1990s that Equitable was effectively insolvent, yet they allowed it to take in another £20bn in pension contributions.

Today Paul Weir, founder of the Equitable Late Contributors Action Group, told BBC Radio 4: 'We are prepared to fight for as long as it takes to get money and if that means going to judicial review, that's what we will do.'

The Ombudsman's report stated that the former DTI and the Government Actuary's Department were 'passive, reactive and complacent' in their regulation of the society and identified 10 instances of maladministration.

Equitable chairman Vanni Treves said: 'This milestone report has laid bare the unmitigated disaster that was the regulation in the 1990s and beyond. The Government has known of the findings for many months and we call on the Government to accept the report's recommendations for a compensation scheme without further delay.'

The Treasury said it would make a response by the autumn. The Equitable scandal surfaced in 1994 when the insurer said it would cut the size of the final bonus paid to 90,000 customers. Those customers said they were sold guaranteed annuities that promised a minimum level of retirement income, and the firm had reneged on its deal.

Do the Equitable thing, Darling

Ruth Sunderland in The Observer, 14th July 08

With a costly support operation for Northern Rock already under way, Bradford & Bingley in dire straits and the public finances under strain, the government can ill afford another £4bn to compensate victims of the Equitable Life scandal. But as I said in this column a couple of weeks ago, Gordon Brown and Alistair Darling should do exactly that if, as expected, the report by the Parliamentary Ombudsman this week recommends it.

Sadly, a speedy payout is not on the cards. Seasoned pension campaigners expect the Treasury to prevaricate by saying it needs time to consider the report, and then to seek to limit its liability by claiming government agencies were not responsible for all the losses sustained by investors. The general idea will be to pay as slowly, and as little, as possible.

This is shabby for three reasons. First, the bosses of Equitable were the ultimate authors of the insurer's misfortunes, but successive governments set in place a regulatory environment that allowed them to indulge in their arrogant follies. Second, failure to compensate Equitable savers will further erode confidence in pensions savings, just as refusing to bail out Northern Rock would have caused terrible damage to faith in the banking system. Finally, there is the issue of government contempt for the office of the ombudsman itself.

This was set up as an independent body to safeguard the public against actions by government departments without having to go to law. If ministers flout its recommendations, as they did in an earlier case involving 150,000 people who lost pension savings when their employers went bust, that protection is fatally undermined - a very bad thing not just for Equitable policyholders, but for democracy.

No happy ending in sight for the victims of Equitable Life

Julian Knight in The Independent on Sunday, 14th July

This week will bring the latest twist in the seemingly never-ending saga of Equitable Life, the mutual life insurer that came to the brink of bankruptcy around the turn of the millennium. Ann Abraham, the Parliamentary Ombudsman, will release her long-delayed report on whether the Government was partly to blame for what happened.

Policyholder groups – representing thousands who have seen their life savings decimated – want to sue the Government for compensation. The main conclusion of Ms Abraham's report was leaked last week, and that is that the Government was guilty of maladministration.

However, we've been here before. Lord Penrose first reported on Equitable way back in 2004 and damned all and sundry, including the Government. The report was complex and over long, allowing the then Chief Secretary to the Treasury, Ruth Kelly, to draw the sting out of it in, what was frankly a masterful, but also a deeply amoral address to the House of Commons. The upshot was that the Government gave itself a clean bill of health and rubbished the idea that it should pay compensation.

This time around, despite the extra moral clout the Ombudsman has, the outcome will be the same. The policyholders will be left to fend for themselves – for two reasons. First, there is a deep-held view in Whitehall that the Government is not meant to compensate those who lose out through investment. This view was one of the stumbling blocks when the 125,000 people who lost their pensions in failed company schemes tried to get justice. After an age, the Government gave way on that occasion, but Equitable is seen as a very different kettle of fish. Although regulation was shoddy – the insurer should have been closed to new business far earlier than it was, to stop lots of good money going after bad – the real blame lies with its former management, who in turn were appointed by the members themselves.

Second, the Government simply doesn't have the money to pay an estimated £4bn in compensation. The UK's public finances resemble those of a banana republic more and more each day, and any reserves have been used up buying off Labour's 10p tax rebels.

Anyone who has followed the Equitable Life story as long as I have – nine years and counting – can't help but be struck by the sense of injustice felt by its policyholders. They signed up to the oldest, seemingly safest pair of hands in the business and were let down in a truly atrocious way. I well remember being buttonholed by one aged policyholder at the Equitable AGM a few years back. With tears in his eyes, clearly in ill health and weighed down with masses of paper relating to his case, he told me he wanted justice and at least some compensation "before they put me in a box". But whatever the Ombudsman says this week, I can't see these people getting their money back.

Victims' wait is nearly over

Teresa Hunter in Scotland on Sunday 13th July, 2008

The Equitable report is imminent, writes Teresa Hunter.

VICTIMS of the Equitable Life collapse have had to wait 10 years to get to the bottom of what went wrong at Britain's finest insurance company and why their life savings were left in shreds.

Within a couple of days they will hear who was to blame for the collapse of Britain's oldest mutual when Parliamentary Ombudsman Ann Abraham finally publishes her long-awaited report into its downfall.

Her findings are a foregone conclusion. It has been an open secret for more than a year that the Ombudsman would find the Government and a succession of regulators guilty of maladministration.

This will unleash calls for £4bn in compensation for more than a million investors whose contracts were slashed by a series of cuts to their policy values. But their cries are likely to fall on deaf ears, just as they have over the past eight years. When he was Chancellor, Prime Minister Gordon Brown made it clear that public money would not be forthcoming to ease their plight.

Even if he now wanted to offer an olive branch, the huge bailouts of Northern Rock and victims of company scheme collapses have left his coffers empty.

But Equitable policyholders' grounds for justice are unequivocal. The first in-depth report commissioned by the Financial Services Authority and completed by Ronnie Baird in 2001 pointed to significant regulatory failings. It did, though, largely clear the FSA itself of responsibility, as the watchdog did not legally become responsible for regulating insurers until 2001, by which time the damage had been done and little could hope to avert a collapse.

The next major report, from Scottish judge Lord Penrose, wasn't quite so magnanimous about the FSA's role, but was sharply critical of the Government Actuary's Department (GAD), which was responsible for Equitable's regulation over the most extended period, working on behalf of the Department of Trade and Industry and the Treasury when they were the watchdogs.

Penrose said the GAD's supervision of Equitable was "complacent, lacking in challenge and hesitant to criticise". It also implied that GAD actuaries were in awe of the society's executives, who were more senior members of the old boys actuarial network prevalent in the early 1990s.

But Penrose saved his most scathing criticism for Roy Ranson, who ran the company from 1991 to 1997, and who he concluded had a manipulative and bullying management style.

However, the subsequent findings of Actuarial Profession disciplinary proceedings against the management, including Ranson, former chief actuary Chris Headdon and former chief executive Alan Nash, were even more damning.

These found everything started to go wrong because of Ranson's ambitions for the company, which grew eightfold from £4bn under management in 1988 to £34bn 12 years later. Such rapid growth would be dangerous for any insurer, but it was achieved by paying out more in bonuses than the company had earned. It overpaid in good years, and did not adjust its policy even when markets fell sharply.

This led investors to believe the company was achieving much better returns than it was. At the same time it was offering highly attractive guarantees which allowed pension savers to convert their pots into annuities at a 12.5% rate.

Again, when annuity rates collapsed to 7% it did not adjust this policy, nor the very generous terms on which they were granted.

Worse still, the number-crunchers had got their sums wrong. Equitable had actually lost 10.4% in 1990, which made the overpayment even more critical. Returns were negative again in 1994.

The society's sums were now well out of kilter, but this was concealed from potential investors. Neither were they informed that the fund had two classes of shareholders: one (those with guarantees) with priority rights over the other.

Yet the GAD failed to force Equitable to change its strategy or to disclose the risks to new investors.

Ranson attempted to head off the approaching train crash by introducing different bonus rates for different customers. Under the rules at the time this was illegal without full policyholder assent. But he did not tell policyholders for three years.

When a few policyholders caught on and complained, the society instigated legal proceedings which it fought all the way to the House of Lords. However, the law lords decided guaranteed pension promises had to be met in full, thereby effectively bankrupting the company.

Equitable sought a buyer, but when none was forthcoming it closed its doors to new business in 2000, at which point investors were forced to give up their guarantees, and many saw their pensions cut sharply as a result.

In the wake of Abraham's ruling, Equitable campaigners will launch a major campaign calling on the Government to distribute £4bn between the surviving 1.2 million investors who saw their savings slashed as a result of the collapse.

However, paying redress would be complicated. Different groups of policyholders were impacted in different ways. Furthermore, only 275,000 policyholders remain with the society, whose funds under management have fallen to £7bn. More than a million either withdrew their cash or had investments switched to another company.

More than 30,000 of the original investors have died, according to the Equitable Members Action Group, which is why it is calling for a fund to be set up immediately.

It plans to unleash a concentrated campaign to force the Government to fully compensate the victims, in the light of the Parliamentary Ombudsman's report.

Who was hit hardest

• Late joiners
  They were encouraged to join after September 1998 when Equitable's legal advisers warned it could lose the court battle over guaranteed annuities. New investors were reassured their money was safe, and given misleading information about the likely outcome of the legal battle. They were misled about the implications should they move.
• Those without guaranteed annuities
  When they invested, members were never told another class of policyholders in the with-profit fund had a superior claim on the fund.
• Guaranteed annuitants
  These never received the guarantees they were promised.
• With-profit annuitants
  These were initially told that their pensions would not be cut, but many subsequently saw their retirement income reduced by 40%.
• Employees with AVCs in Equitable
  They were not able to unilaterally switch their holdings elsewhere.

Brown pressured to help Equitable victims

Jeff Prestridge, Mail on Sunday 13 July 2008

Gordon Brown will come under acute pressure this week to agree a multi-billion pound compensation package for more than one million people who saw their retirement savings savaged by the near collapse of insurer Equitable Life.

After four years of investigation, and many obstacles put in her way by Government officials, Parliamentary Ombudsman Ann Abraham will confirm there was widespread regulatory failure of Equitable in the years leading up to its near collapse in 2000.

As a result, she will recommend that policyholders should be compensated for the losses they incurred as Equitable subsequently slashed policy bonuses to save it from going bust.

'Her report is incredibly damning,' said a source close to Abraham.

'The evidence she lays out in her 3000-page report, confirming maladministration by the Treasury, the Financial Services Authority and the Government Actuary's Department, speaks for itself.'

Equitable campaigners believe the Prime Minister will brush aside Abraham's conclusions just as Labour dismissed her request for immediate compensation for victims of failed company pension schemes.

This will force Equitable victims to instigate a judicial review to obtain compensation - as they are permitted to do.

Paul Braithwaite, general secretary of the Equitable Members' Action Group, said:

'The regulators were asleep at the wheel. They failed Equitable Life policyholders and we have an over-arching right to compensation.'

EMAG posts appeal for Scottish volunteers

SIMON BAIN The Herald 12th July 2008

EQUITABLE Members Action Group ( EMAG) is appealing for volunteers in Edinburgh and Glasgow to co-ordinate a campaign to win compensation from the government for policyholders in Scotland who lost money with Equitable Life. EMAG, which after seven years still has 10,000 subscribing members, is setting up a network of regional action groups in anticipation that Parliamentar y Ombudsman Ann Abraham may recommend compensation when her 3000-page report is published next week, two-and-a- half years late.

Tens of thousands of people in Scotland are among those who lost anything up to 50% of their retirement income or savings as a direct result of the scandal. Last year, the European Parliament called, by an overwhelming majority, on the UK government to pay up, after a year-long inquiry at which The Herald gave evidence.

“The parliamentary ombudsman is widely expected to call on the government to compensate us for the appalling failures in regulation by a succession of regulators,” said Paul Braithwaite of EMAG. “We believe that the case for compensation is overwhelming.”

One couple, who asked not to be named, said this week they had trusted Equitable because of its reputation. “My wife and I are both in our early 80s now and we f eel bitter about the whole debacle . I am subject to anxiety and fearful we shall not be able to pay bills with increased living costs in our retirement combined with such an enormous reduction in our pension.” Braithwaite said : “ We expect Gordon Brown to fight tooth-and-nail to avoid paying out a penny in compensation. But just a few hundred votes in marginal constituencies could turn the tide and force the government to finally do the decent thing.”

Vanni Treves , Equitable chairman, last week urged the government to respond properly to any recommendation for compensation.

EMAG has set up 20 regional groups to launch the campaign with the possibility of extending the network, if necessary. Regional websites will include information on campaign action and detailed advice on how to contact MPs and their rival candidates.

Braithwaite said: “ After seven frustrating years of waiting, we ’r e taking this campaign to the grassroots so that MPs can see just how aggrieved their constituents are at this gross injustice.”

www.emagregional.org.uk

Opposition join calls for apology over Equitable Life

The Scotsman, by Ben Padley 18th July

OPPOSITION MPs yesterday added their weight to demands that the government apologises to the hundreds of thousands of people who lost savings because of Equitable Life's regulatory failure.

The Parliamentary Ombudsman, in a report yesterday, found evidence of "serial regulatory failure" for more than a decade.

She accused the government and regulators of maladministration that led to losses for Equitable customers said to be more than £4 billion.

Harriet Harman, the leader of the Commons told MPs that she would consider demands for a vote on the issue and for Chancellor Alistair Darling to make a statement in the Commons. She told MPs the government would give "full consideration" to the comprehensive report by Ann Abraham.

Her Tory shadow, Theresa May, called for a "guarantee" that MPs could question Mr Darling after the summer break.

Tory Christopher Chope called on ministers to put a stop to "weasel words" and "do the Ombudsman's bidding" and apologise.

Ms Harman said: "I think all members in the House are concerned about those people who lost out as a result of Equitable life." She added: "I think there will be full consideration in government and then we will consider how we can make sure this House has a proper chance to question and possibly debate and even vote on the results."

Ms Abraham called for a compensation scheme to be established to assess the individual cases of policyholders and to compensate them for money they had lost.

Ombudsman reverses decision of five years ago and calls for compensation for insurer's victims

The Independent, by James Daley, Personal Finance Editor
Thursday, 17 July 2008

The Financial Services Authority will be dealt yet another hefty blow to its credibility today, as the Parliamentary Ombudsman, Ann Abraham, reverses her decision of five years ago and accuses it of maladministration for its role in the collapse of Equit-able Life eight years ago.

The FSA is one of four institutions – along with the Department of Trade & Industry (DTI), Government Actuary Department (GAD) and HM Treasury – which are accused by Ms Abraham of presiding over a "decade of regulatory failure", which culminated in the insurer's collapse in December 2000.

Although the Ombudsman gave the FSA a clean bill of health in her first report into Equitable, which was published in 2003, her latest and infinitely more thorough investigation reverses that decision.

"The case of Equitable Life, which echoes earlier cases such as Vehicle & General in the 1970s and shares some similarities with the current example of Northern Rock, illustrates the need for absolute clarity as to what can and cannot be expected from financial regulation and the development of shared understandings as to the limits to the protection that such regulation offers to investors both before and after problems arise, as they inevitably will," said Ms Abraham.

"Key, however, is that those responsible for undertaking financial regulation should act in a way that is compatible with the duties and powers which Parliament has conferred on them. Those responsible for the prudential regulation of Equitable Life failed to do so throughout the period covered in my report."

The new Ombudsman report is a study which the FSA never wanted to see. Callum McCarthy, the outgoing chairman of the FSA, tried to prevent Ms Abraham embarking on a new investigation – the 13th inquiry into Equitable – in 2004, writing her a letter, saying: "I ... believe a further review would raise consumer expectations which in reality it could not meet, because it is very unlikely to be able to conclude that there was maladministration."

Today's report, however, not only concludes that there was maladministration, but calls on the Government to apologise as well as fully compensate the thousands of people who were affected by Equitable.

The report lands several charges at the feet of each of the four institutions which had responsibility for its regulation in the 10 years leading up to its closure. Before July 1998, Ms Abraham accused the DTI and GAD of regulating in a "passive, reactive and complacent" manner. Specifically, she criticised the regulators for letting one person hold the role of both chief executive and appointed actuary for more than six years, as well as a failure to seek to resolve any of the issues which were apparent within the insurer's annual regulatory returns. She also criticised the DTI and GAD for allowing the introduction of a differential terminal bonus policy, which was later to become central in Equitable's collapse.

During the two and a half years leading up to the Society's closure, the FSA (acting on behalf of the Treasury) took over responsibility for the regulation of the insurer. However, Ms Abraham said that while the FSA and GAD "often initiated discussions appropriately with Equitable", they still allowed Equitable to take credit on their books for reinsurance contracts which had not been concluded. The report also said the FSA failed to ensure that Equitable warned policyholders of the serious implications of losing a pivotal court case in 2000, which eventually led to its demise. After losing the case, the regulators also allowed Equitable to stay open to new business, even though the business was at this stage unsound.

The FSA said yesterday that it was not willing to comment on the report, and would wait for the Government to make its response first.

The Government will ann-ounce today that it intends to spend the summer analysing the report, before formally responding to it in the autumn. However, Vanni Treves, the chairman of Equitable, yesterday accused the Treasury of employing stalling tactics, claiming that it had been in possession of almost all of the current report since the beginning of the year.

Indeed, the report already contains preliminary responses from both the FSA, which became an independent, non-governmental organisation in 2001, and the Government itself, which said it does not believe the Parliamentary Ombudsman has the power to recommend it to pay compensation.

The report recommends that an independent body is set up to establish exactly how much of investors' losses was caused by maladministration – as opposed to the subsequent market collapse. The Equitable Members' Action Group (EMAG) suggests this amounts to £4.65bn.

If the Government rejects the findings of the report when it rep-orts to Parliament in the autumn, there is likely to be a backlash from both opposition and backbench government MPs. Over the last three years, the Government has already dismissed two Ombudsman reports – relating to tax credits and the regulation of occupational pensions – which found it guilty of maladministration. A third would bring into question the Government's respect for the British democratic system.

"After eight years and 13 rep-orts, it's time for the Government to finally admit that it comprehensively failed to regulate Equitable Life properly," said Vince Cable, the Liberal Democrat Treasury spokesman. "For years, ministers have acted like they were in a castle under siege, hoping that Equitable Life policy-holders would give up and go away. Today's report shows that, rightly, this is not going to happen."

The Shadow Chancellor, George Osborne, said: "The Ombudsman rightly highlights regulat-ory failings, including those between 1998 and 2001, when Gordon Brown and the Treasury had responsibility for this area. He cannot escape the blame for what happened on his watch. We're glad that the report accepts the principle that there should be payments to those who lost out. The job now is to assess how much those payments should be and to whom they should be paid.

"It is up to the Government now to admit its responsibility, issue the apology that the Ombudsman demands and create the payment scheme. If it doesn't, we will."

EMAG said that if the Government refuses to follow the Ombudsman's recommendations, it will take the report to judicial review in the High Court – a case it would be expected to win. "We want to ensure that the Equitable scandal becomes an embarrassing election issue" said Paul Braithwaite of EMAG. "If we can hit them where it hurts in the marginals, perhaps at last the Government will start listening to the victims.

Jeremy Warner's Outlook:
Well done Vanni, but should taxpayers be liable for every regulatory blunder?

The Independent: Thursday, 17 July 2008

You begin to feel almost sorry for the beleaguered Financial Services Authority. Already reeling from the collapse of Northern Rock, for which it has admitted a degree of blame, and now running around like a headless chicken trying to put out the flames of one of the worst banking crises of the modern age, it has been found guilty of no fewer than half of the 10 determinations of maladministration made today by the Parliamentary Ombudsman in connection with the closure of Equitable Life.

The findings lay the Government open to possible compensation of £4bn, so, in all, Gordon Brown's regulatory brainchild, until a year ago routinely hailed as one of his key policy successes, is turning out to be quite a liability. Ann Abraham's report is a truly damning account of the clumsy and sometimes reckless way in which regulators dealt with a company which was plainly out of control.

Yet though Vanni Treves, chairman of Equitable Life, and his policy holders have won a splendid victory in persuading the Ombudsman to change her mind – in her first report on the issue in 2003, she cleared the FSA of maladministration – I'm not sure the whole thing is as cut and dried as she makes out.

To date, the FSA has largely excused itself of culpability in the debacle, pointing out, rightly in some respects, that the die had been cast long before it came into existence in the late 1990s. Yet the Ombudsman accuses the FSA of being a part of "a decade of regulatory failure". Its actions after taking over prudential oversight of Equitable are found to have been "largely ineffective and often inappropriate" and it is accused of having failed "properly to exercise its regulatory functions".

The main thrust of the allegation is that the FSA permitted Equitable to remain open on an unsound basis, with the result that premiums worth hundreds of millions of pounds were written under the FSA's watch on the basis of a false prospectus. Those who look to regulators to provide them with accurate and balanced information are said to have been "let down".

If all this sounds bad for the Government, just wait for what she accuses ministers of directly. Their behaviour in failing to establish a single inquiry into the closure not hampered by questions of jurisdiction or limited terms of reference is described as "iniquitous and unfair".

And still the Government is trying to wriggle off the hook, as it did with pensioners whose companies had become insolvent. In that case, the Government was eventually embarrassed by its own backbenchers and the courts into paying out.

To try to avoid a similar fandango this time around, Ms Abraham has leant over backwards to take on board the Government's arguments and rebuttals, repeatedly delaying completion of the report even as Equitable Life policyholders were dying off before they could find salvation.

Yet still the Government wavers on the issue of compensation, even though it knows it faces a constitutional crisis if it rejects the case put forward by Ms Abraham. Unless it apologises and pays up, as demanded, she will resign, reasonably arguing this is not how a parliamentary democracy is meant to work.

The Government showed no compunction whatsoever when it provoked Elizabeth Filkin into resigning as Parliamentary Commissioner for Standards for asking too many awkward questions. But it may not be able to behave quite so cynically with Ms Abraham, whose position is a more entrenched, constitutional and authoritative one. All the same, the Treasury shows every sign of doing its damnedest, for this is not so much a case of "won't pay" as "can't pay".

With the public finances already in such a mess, where's the money going to come from? You've guessed it. Ultimately it will be the taxpayer who picks up the bill for the regulatory failure now established. The £4bn required equates to about 2p on the basic rate of income tax.

As I say, full marks to Vanni Treves and the campaign for compensation, but let me just briefly put the other side of the case.

It is all very well for Ms Abraham with the benefit of hindsight to find the FSA and its predecessor regulators guilty of misjudgment, but is misjudgment really the stuff of maladministration? Ms Abraham alludes in the report to Northern Rock, but Equitable is not at all the same. With Northern Rock, the FSA was asleep at the wheel and has admitted so. With Equitable, the FSA knew there was a problem but took the wrong decisions on what to do about it. As far as I can see, there is no proven case of gross negligence.

A wider point needs to be made here. If the taxpayer is going to be held accountable for every case of regulatory failure that occurs, there's no knowing where it will end. The potential liability would be limitless. What should be done about the other, less high-profile, life fund closures that occurred around the same time, some of which have involved policyholders in even bigger losses? Should they be compensated too? The point of regulation is not to pay out when things go wrong, but to try to stop things going wrong in the first place.

Occasionally, there are bound to be failures. Regulators are only human, and, if the taxpayer is going to held liable for their mistakes, then perhaps governments shouldn't be regulating at all. Some might think that a rather good idea, but that's a debate for another day.

Watchdog orders compensation over Equitable Life scandal - but millions of victims get nothing

Daily Mail, Becky Barrow 17th July

Scathing: Ombudsman Ann Abrahams blames 'more than a decade' of mismanagement by Government regulators

A million victims of the Equitable Life scandal have been refused immediate compensation despite a damning Ombudsman report ordering the Government to pay up.

The Parliamentary Ombudsman has called for money lost by investors to be paid back due to the 'serial regulatory failure' which did nothing to stop the company's downfall.

Equitable Life was Britain's oldest mutually-owned insurer, set up in 1762, with a Who's Who list of policyholders from judges to accountants.

But the company came to close to collapse after making gold-plated promises to its policyholders which it could not afford to keep.

Rather than pinning the blame on Equitable's management, the Ombudsman lays the blame for the failure at the door of the official institutions which were meant to keep a close eye on the firm.

Equitable Life Assurance Society logo.

Last night, the Government refused to listen to the demands by the Ombudsman, Ann Abraham, for compensation to be paid out immediately.

She said compensation, which experts estimate could total £4.5billion, must be paid within two years and a full Government apology made to victims.

But last night the Treasury put out a bland response to the report, saying only that it 'expects' to make a 'full response' after Parliament's 11-week holiday.

This is despite the fact that a draft of the report was sent to the Government more than 18 months ago in January 2007.

Yesterday a Treasury spokesman insisted: 'The length and complexity of the report mean it would be inappropriate to comment before giving it our full and careful consideration.

'We expect to provide a full response to the House in the autumn.'

Kitty Ussher, the Economic Secretary to the Treasury, will make an 'initial' written statement to MPs today but no further details about its decision whether or not to pay compensation are expected.

It would be almost unprecedented for Labour to ignore the Ombudsman's findings, which have only been rejected a handful of times in its 41-year history.

The report, which follows a four-year investigation, is an wholesale attack on a system which failed to protect Equitable Life policyholders.

Its damning conclusion is that three Government bodies - the former Department of Trade and Industry, the Government Actuary's Department and the Financial Services Authority - are guilty of 10 counts of 'maladministration'.

This can mean anything from bias and incompetence to inattention and ineptitude.

It says: 'They failed for considerably longer than a decade properly to exercise their regulatory functions in respect of Equitable Life.'

Miss Abraham even says Equitable Life 'shares some similarities' to Northern Rock, the disgraced bank which was nationalised in February.

The implosion of the company was so shocking because it was seen as the safest and the best place for Britain's elite to invest their money.

The retirement plans of many of the one million victims have been destroyed after losing money which they thought was safe and well-invested.

Miss Abraham said they have a 'justifiable sense of outrage', which is why today's report demands an apology to help heal their wounds.

Paul Braithwaite from the Equitable Members Action Group described it as a 'red letter day' for the firm's long-suffering victims.

He said: 'The UK regulators were fully aware for a decade that Equitable Life was effectively insolvent, yet they allowed the company to grow six-fold and suck in another £20billion in pension contributions from more than a million new investors.'

He is calling on Parliament to compensate the victims 'without delay', pointing out 'thousands of pensioners' have already died waiting for justice.

Mr Braithwaite said: 'It is time the Government stop hiding behind one enquiry after another and do the moral thing to bring this sorry saga to a close.'

Shadow Chancellor George Osborne said Gordon Brown 'cannot escape the blame for what happened on his watch'.

He welcomed Miss Abraham's conclusion that payments should be made to those who lost out, but said they must be 'consistent with sound public finances'.

Mr Osborne said: 'It is up to the Government now to admit its responsibility, issue the apology that the Ombudsman demands and create the payment scheme. If it doesn’t, we will.'

Equitable's current chairman, Vanni Treves, described the report as 'the most damning report of a catalogue of errors that you could possibly imagine'.

In 2006, the Parliamentary Ombudsman found the Government guilty of misleading 85,000 workers into believing their pensions were safe.

Labour initially ignored the demand for compensation, but eventually agreed to make a payout two years later.

Quick payout denied to Equitable victims

Simon English, Evening Standard, 17 July

Equitable Life policyholders can expect to wait at least three years before they receive even a slice of the compensation they hope to get from the Government following the collapse of the insurer.

Campaigners who have been pursuing the issue for the past eight years admit that more battles - probably in court - are likely, despite the call from the Parliamentary Ombudsman for a speedy resolution to the issue.

The final report into the UK insurance industry's worst failure, published yesterday, advocated that ministers set up a fund for the million-plus customers who saw their pensions devastated.

Ann Abraham, the Ombudsman, said the DTI, the Government's Actuary Department and the Financial Services Authority failed to use the powers available to them to protect Equitable's customers. It was 'a decade of regulatory failure' that should lead to compensation payments, she argued.

The Equitable Members Action Group claims £4.65bn was lost by 1.5m policyholders. But with Government finances in disarray, it seems unlikely that anything like this will be paid.

The group, led by Paul Braithwaite, pledged to continue the fight by making the Equitable scandal an election issue. But he concedes they may have to wait for a new government before anything is paid out. Pensioners' relatives are already gearing up to pursue claims if the policyholder dies before a deal is cut.

Braithwaite said: 'Thousands of pensioners have died waiting for justice. It's time the Government stopped hiding behind one inquiry after another and did the moral thing.'

The campaigners say watchdogs were aware in the early 1990s that Equitable was effectively insolvent, yet they allowed it to take in another £20bn in pension contributions.

Today Paul Weir, founder of the Equitable Late Contributors Action Group, told BBC Radio 4: 'We are prepared to fight for as long as it takes to get money and if that means going to judicial review, that's what we will do.'

The Ombudsman's report stated that the former DTI and the Government Actuary's Department were 'passive, reactive and complacent' in their regulation of the society and identified 10 instances of maladministration.

Equitable chairman Vanni Treves said: 'This milestone report has laid bare the unmitigated disaster that was the regulation in the 1990s and beyond. The Government has known of the findings for many months and we call on the Government to accept the report's recommendations for a compensation scheme without further delay.'

The Treasury said it would make a response by the autumn. The Equitable scandal surfaced in 1994 when the insurer said it would cut the size of the final bonus paid to 90,000 customers. Those customers said they were sold guaranteed annuities that promised a minimum level of retirement income, and the firm had reneged on its deal.

MPs call for vote on Equitable Life compensation
· Pressure on government after damning report
· Treasury rejects parallel with Northern Rock

The Guardian, Phillip Inman and Rupert Jones
Friday July 18, 2008

MPs put pressure on the government in the Commons last night to allow a vote on paying compensation to those who lost money in the Equitable Life scandal.

The chancellor, Alistair Darling, said he would respond to the hard-hitting report by the parliamentary ombudsman in the autumn, but MPs said he should agree to a debate and allow parliament to determine how compensation is paid.

Ministers faced demands to pay up to £4.5bn in compensation to investors who lost money in Equitable after the parliamentary ombudsman found evidence of "serial regulatory failure" by the government departments and watchdogs that were supposed to be protecting the insurer's customers. A million customers saw their retirement savings slashed when the company came to the brink of collapse at the start of the decade.

In a 2,800-page report, Ann Abraham identified 10 instances of maladministration in the period leading up to December 2001 and called on the government to apologise to policy holders for the "injustice" they had suffered. She also recommended that ministers set up a compensation scheme and said there were similarities with the bail-out of Northern Rock. The Treasury has rebutted claims that the government should pay out. Ministers have argued behind the scenes that comparisons with Northern Rock are flawed as the financial rescue for the Newcastle-based lender was in the form of loans, not a pay-out of billions of pounds as would be the case with Equitable policy holders.

However, lawyers and campaigners piled pressure on ministers, warning that the government faced expensive legal action unless it devised plans for compensation. Law firm Cohen, Milstein, Hausfeld & Toll, which earlier this year negotiated a £73.5m settlement on behalf of BA/Virgin UK passengers who were victims of fuel surcharge price fixing, said it would act on behalf of Equitable policyholders who lost out.

David Greene, a partner at Edwin Coe, which acted for Paddington train crash victims and is supporting legal actions brought by Northern Rock shareholders, said the government needed to show that it acted fairly towards policyholders even though it is not obliged by law to abide by the ombudsman's decision and recommendations: "Insofar as it rejects the conclusions and recommendation it must do so fairly and rationally. If it fails to do so, then its decision may be subject to judicial review."

The leading policyholder group, Equitable Members Action Group, said ahead of the report's release that it was "digging in for a long fight" and was prepared to launch a judicial review if necessary.

Equitable Life itself, which has mainly kept silent during the ombudsman's investigation, also warned the government to "play fair" by its policyholders. Its chief executive, Charles Thomson, called the ombudsman's report "a very fine piece of work" that exposed a whole catalogue of serious regulatory failure. The chairman, Vanni Treves, said that if the government failed to pay compensation, "we will lobby everybody we possibly can, and constituents will do the same". Thomson added that they would be lobbying MPs.

Equitable Life: 'It is morally corrupt'

Rupert Jones, The Guardian, July 17, 2008

Equitable Life case study: Stewart Simpson

Stewart Simpson thought he had done everything necessary to secure himself a comfortable retirement. After working "bloody hard" as an accountant for 40 years, and following a huge amount of research, he put his pension cash in an Equitable Life policy. Then, a few weeks later, the insurer lost a multibillion-pound legal battle, setting off a chain of events that saw it almost collapse.

The fallout from those events early this decade has been dramatic. Simpson suffered a sharp drop in pension income and, as a result, he and his wife decided to downsize to a bungalow. Even though he had retired in 2000, he worked as a consultant for five years to supplement his falling income. "It hasn't actually been an easy retirement, and it should have been," said Simpson, 69, who lives in Woking, Surrey. It was his sample case that was investigated by parliamentary ombudsman Ann Abraham in her first inquiry into the Equitable debacle.

Simpson put £500,000 into an Equitable Life with-profits annuity in June 2000, just weeks before the insurer lost a case over "guaranteed annuity rates" sold as part of its pension plans. In 2003, the company announced savage cuts to the incomes paid to its with-profits annuity holders as it attempted to shore up its precarious finances.

He has no doubts as to who is responsible. "The people who should have spotted this problem, ie the regulators, were totally and utterly useless, and, in fact, I believe they knew there were problems and did absolutely nothing about it."

Simpson believes that compensation should be paid to everyone who has lost out as a result of the scandal. But he suspects the government will fight the ombudsman's recommendations "tooth and nail". He added: "This government will never pay out because it is morally corrupt."

Conservative Party: George Osborne, 17th July

"We Conservatives forced the government to allow the Parliamentary Ombudsman to investigate the regulation of Equitable Life and we welcome her report. The Ombudsman rightly highlights regulatory failings, including those between 1998 and 2001, when Gordon Brown and the Treasury had responsibility for this area. He cannot escape the blame for what happened on his watch.

We’re glad that the report accepts the principle that there should be payments to those who lost out. The job now is to assess how much those payments should be and to whom they should be paid. We have to be straight with policyholders. As the Ombudsman makes clear, policyholders cannot expect to receive payments for the full losses suffered and any payment scheme must be consistent with sound public finances.

It is up to the government now to admit its responsibility, issue the apology that the Ombudsman demands and create the payment scheme. If it doesn’t, we will."?

Government must admit it failed to regulate Equitable Life properly -

Dr Vince Cable 17th July

Commenting on today’s Parliamentary and Health Service Ombudsman report into the collapse of Equitable Life, Liberal Democrat Shadow Chancellor, Vince Cable said:

"After eight years and 13 reports it’s time for the Government to finally admit that it comprehensively failed to regulate Equitable Life properly.

"For years ministers have acted like they were in a castle under siege, hoping that Equitable Life policy holders would give up and go away. Today’s report shows that, rightly, this is not going to happen.

"Gordon Brown has overseen a complete and repeated failure of regulation spanning a decade. The outrage expressed by policyholders over this ‘serial regulatory failure’ is entirely justified.

"After months of dragging its feet, the Government needs to accept the Ombudsman’s recommendation that ‘wrongs should be remedied’.

"If ministers choose to disregard this report, as they have done over tax credits and occupational pensions, it will be the final nail in the coffin for the Ombudsman’s credibility.

"These are large sums of money, especially at a time when belts are being tightened. Gordon Brown must now admit fault and apologise to policyholders.

"It is critical that the Government now sets out a credible, transparent and independent process to enter into a dialogue with policy holders over compensation."

Compensation call over Equitabl