Treasury faces £4bn bill for Equitable fiasco
The Government's reputation for financial competence is set to be dealt another hammer blow next week, as the Parliamentary Ombudsman publishes her long-awaited report into the regulation of Equitable Life, accusing the Department of Trade and Industry, the Government Actuary's Department and the Treasury of maladministration.
The report by Ann Abraham – which has taken four years to complete – will call on the Government to provide up to £4bn in compensation to the thousands of people affected by the Equitable Life debacle, yet another bill the Treasury cannot afford to pay in the current economic climate.
Equitable Life collapsed in 2000 after the House of Lords ruled that the insurer was not allowed to renege on a series of guarantees it had granted to its annuity customers. The ruling left it financially insolvent, forcing it to close to new business and slash the value of many of its customers' policies.
The Ombudsman's report is expected to point the finger at the DTI and GAD for regulatory failures in the early 1990s, as well as at the Treasury and Financial Services Authority, which were in charge of the insurer during the last years leading up to its collapse.
The Ombudsman had hoped to publish her report two years ago. However, the Government came back with more files of evidence – which campaigners claim were stalling tactics. When the report was ready to be published last summer, the Treasury handed over another 550 pages of evidence, preventing it from being released at the start of Gordon Brown's premiership.
The timing is now no better for the Government, delivering another blow to its reputation as a financial regulator less than a year after the Northern Rock debacle.
The report comes just two years after the Ombudsman's report into the regulation of the occupational pensions market, which also found the Government guilty of maladministration. Although the Government tried to brush aside the conclusions of that report, a High Court judge later backed up the Ombudsman's findings.
Eventually, the Department for Work and Pensions agreed to pay up and properly compensate the 125,000 people affected. The Government's move to compensate the occupational pension scandal victims – and its decision to save Northern Rock by nationalising it – will make it hard to sweep aside next week's report.
Charles Thomson, the chief executive of Equitable Life, said he hoped the Government would adhere to the report's recommendations. "If the Parliamentary Ombudsman recommends compensation, we will call on the Government to do the right thing and to do it quickly," he said.
Paul Braithwaite, general secretary of the Equitable Members Action Group (Emag), said 30,000 of those who lost money due to Equitable's collapse have died over the past eight years, while a further 15 die every day. "Based on the evidence that has come to light, we expect the Parliamentary Ombudsman to find massive maladministration by government departments," said Mr Braithwaite. "We also expect Gordon Brown to fight tooth and nail to avoid paying out a penny in compensation."
Emag has set up 20 regional groups to launch a campaign to force the Government to pay compensation. These include Birmingham, Bristol, Cardiff, Manchester, Leeds, Norwich, Plymouth and Edinburgh – and there is a possibility of further groups being laun-ched. For more informat-ion, members should visit www.emagregional.org.uk.
Pensioners count the cost
* "As a result of Equitable I cannot afford to retire, I am 67 years and I also have prostate cancer. I cannot afford to stop work, given that with a state pension of £5,000 per year I would have to go cap in hand to the state for credits. Any faith I had in private pension providers evaporated with Equitable Life."
* "I am now 80 and my wife 84 years of age. Our gross annuity has reduced from £18,700 in 2000 to £9,500 in 2008 – a reduction of 49 per cent. We have resorted to an equity release scheme on my house at a 90 per cent rate to replace some of the lost income. This means that we will not be able to leave anything reasonably substantial to our family, and will severely restrict funds available for illness in old age. We have had to cancel the lifetime care insurance which was intended to contribute towards possible nursing home cover in the future."
* "As a result of Equitable my income has reduced by approximately 33 per cent. This means that 'luxuries' such as holidays, new clothes and repairs to my house and car have to be paid for out of savings. This has not been a problem so far, but savings are irreplaceable and the time will shortly come when lack of income will present a problem."
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