MPs hit by Equitable disaster

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Hundreds of MPs stand to lose tens of thousands of pounds each after being caught up in the Equitable Life pensions debacle.

Hundreds of MPs stand to lose tens of thousands of pounds each after being caught up in the Equitable Life pensions debacle.

Around a third of MPs have been paying additional voluntary contributions to Equitable through the Parliamentary Pensions Unit. But now, like an estimated 400,000 other policyholders, they are waiting to see whether their investments are safe - and the trustees of their fund are deciding whether to keep the money with Equitable or get out.

Equitable's problems are rooted in its decision 40 years ago to sell pensions with guaranteed incomes without setting aside the reserves needed to back them.

Policyholders were furious when the institution tried to get around the problem by reducing the maturity bonuses on its policies and, after a series of legal wrangles, the Lords ruled that Equitable must honour guaranteed payments promised to 90,000 people - a demand which left a £1.5bn hole in the accounts.

Equitable was then forced to look for a buyer. When it failed to find one, it had to stop taking on new business.

Already, an estimated 5,000 investors have started to withdraw their savings from Equitable and a further 400,000 could be affected by the organisation's problems.

Concerned MPs are now debating what they should do about the money they have tied up in the firm, which manages funds amounting to £33bn.

At a meeting of the six-person board of trustees of the Parliamentary Pensions Unit last week, members tried to hammer out a strategy to protect their investments.

MPs, in a round-robin letter, were told they could discontinue their contributions, leaving the fate of their nest eggs to be decided with that of Equitable, withdraw their money and cash their policies or transfer the policies to a rival organisation - a move which would forfeit 10 per cent of the value - for some people, thousands of pounds.

John MacGregor, the former Conservative cabinet minister who chairs the trustees, said MPs had been told to take independent financial advice as he and his board members were not in a position to tell MPs what to do. "The trustees are reviewing all the options," he said.

One of the MPs worried about her investment is Anne McIntosh, Conservative member for the Vale of York. "I am requesting that [the parliamentary pension unit] not make any further payments and am trying to switch back to my previous provider, Scottish Amicable," she said.

After calls for a statement from the Chancellor, Gordon Brown, into the role of the Financial Services Authority in the case, she also that it would now be valid for the Treasury to investigate whether the regulatory framework operated as it was supposed to do in the case of Equitable.

But the Treasury, too, could face criticism as the body in charge of regulation in November 1998, when problems with Equitable started to emerge.

There is also growing pressure on the Government to compensate policyholders and suggestions that it could be sued over what has happened.

John Quarrell, a pension expert at Nabarro Nathanson, a law firm, said he thought there should be an inquiry into the role of the regulatory bodies and that "the Department of Trade and Industry, the government actuary and the Financial Services Authority should be brought to account".