Parliamentary Connections

Are we finally turning the pages of the final chapter of the Equitable Life saga? You have to hope so for the sake of the many investors who have struggled along for so many years waiting for someone to admit they got it wrong, very wrong.
Incompetent management that tried to dishonestly duck out of the promises the company made to policyholders was allowed by negligent regulators to destroy a company that was once a mainstay of the life assurance market. The management has been firmly nailed for its part in the fiasco of hyped up promises and unrealistic returns but they have no money to compensate the people who trusted them with their money. The regulator at the time was the old Department of Trade and Industry, later the Treasury, so it has been to government that the investors have looked for compensation: so far, it has callously stonewalled every attempt to persuade it that it has a moral duty to compensate those who have lost out. It is almost as if it hopes the battle will drag on long enough that the annuity holders most affected by the collapse will have died out before it has to do anything.
Unfortunately, it is hard to see anything changing despite the damming report from the Parliamentary Ombudsman.
Gordon Brown as Chancellor wouldn't listen to their pleas so he is hardly likely to change his tune as Prime Minister at a time when there is very little spare public money to be had. He has probably made the cynical calculation that most of the people who lost out were home counties Tory voters so there is no political gain in helping them out. On that he is probably right as very few Labour MPs have ever been exercised by the demise of Equitable Life.

It almost seems as if there is never going to be an end to the Equitable Life saga. Last week’s announcement by Treasury minister Yvette Cooper just prolongs the agony and reinforces the feeling of “justice delayed is justice denied”.
Appointing yet another judge who knows little of the background and nothing of the detail of the decade of woes that have afflicted Equitable Life and its policyholders makes no sense when so many other routes were available. To hand him such a poisoned chalice is just reprehensible.
Why is it a poisoned chalice? The brief that Sir John Chadwick has taken on has no logic, no sense of natural justice and looks doomed to generate ill-feeling, discontent and, probably, legal review. He has, in effect, been given a hardship fund to administer, although he has been given no money to distribute. Ms Cooper’s outlining of a scheme that will help only those who have been “disproportionately affected” without any clear guidance and any money being put on the table will dismay those policyholders out of pocket. You do have to admire the bare-faced hypocrisy of the minister in standing up and apologising for the well-documented failings of government and regulators and then effectively sticking two fingers up at the policyholders.

As anticipation grows that the government will be announcing a compensation package for Equitable Life tomorrow (Thursday), so does the fear that we will be looking well into 2011 before a line is finally drawn under this sorry affair.
The trailing of the government's announcement suggests that it will confirm the recommendation of the Parliamentary Ombudsman, Ann Abraham, that an independent tribunal should be set up to deal with this. Why?
Ms Abraham estimated that it would take six months to set and I have heard enough to make me believe that it will take this long and that it will be a fraught process as there is endless scope for argument about who should be on it. I hope the government is more sensible than this and uses the obvious existing mechanism - the Financial Services Compensation Scheme. It is already there, it works and it works a good deal faster than the estimated two years it would take a newly constituted compensation tribunal to complete the task once it has been set up.

So, autumn really has turned to winter for Equitable Life policyholders as any hopes they had that 2008 might see the final pages of the saga of their quest for compensation turned were dashed. The government has reneged on its commitment to respond during the autumn to the Parliamentary Ombudsman’s report and its damming findings of maladministration on the government’s part.
It has used as its excuse the subsequent investigation of the Public Administration Select Committee which published its report on Monday and wholly backed the Ombudsman’s stance. The PASC may have added weight to the calls for compensation and an apology but it hardly added any new thinking so it is difficult to see how it can be used as an excuse by the government to delay any further. There seem to be two plausible explanations for deferring a response until after Parliament returns on 12 January
The first is that it is going to respond with a rejection of the Ombudsman’s report and that it felt it couldn’t do this until the PASC had reported and then not with undue haste once it had the select committee verdict. It has to at least give the appearance of taking the PASC into account and an announcement this week might have been judged unduly hasty.
The second explanation is that the Treasury will offer some compensation but that it wants to nail down the mechanism for distributing it first. There is huge potential for extended arguments over how individual amounts will be calculated and how this will be overseen. The Treasury will be very aware of the pitfalls that await if it doesn’t get the distribution method sorted out, having seen ambulance chasing lawyers stealing money from miners, compensation scheme. It will want to close off the scope for claimant lawyers to get involved as much as possible.
This brings us back to the possibility that the Financial Services Compensation Scheme could have a role to play. It would certainly deal with the first problem by bypassing the need to set up a one-off compensation authority. It might not entirely head off the claimant lawyers but the FSCS does have considerable experience of dealing with them and of creating claims systems that limit the need fro people to seek legal advice and thereby forgo some of the compensation.
Even though to most observers it does look rather boxed in it is almost impossible to call which way the Treasury will go on this. In the current financial climate an outright rejection is by no means beyond the range of possibilities.

The next phase of the Equitable Life saga will be initiated by the government in the next couple of weeks when it announces its response to the Parliamentary Ombudsman's investigation and the report the ombudsman, Ann Abraham, submitted back in July.
There was a 90 minute debate in Parliament last week, initiated by the Liberal Democrat MP Jo Swinson. Amid the predictable complaints about the long delay in the government's response – originally promised for the "autumn"– there were repeated calls for any compensation scheme the government agrees to to have a "clear, transparent and independent process". The ombudsman's report suggested that it could take six months from the announcement of any compensation package by the government to get such a process agreed and operational.
Putting aside the arguments about how much compensation would be appropriate, I am surprised that no-one has so far suggested using an established mechanism to deal with this – the Financial Services Compensation Scheme.
The FSCS has already been pressed into action to administer the compensation for UK depositors of the collapsed Icelandic banks, creating an obviously precedent for asking it to act outside of its strict terms of reference. Using the FSCS would also by-pass the looming arguments about who would sit in judgement on any new compensation authority established especially for the purpose of sorting out payments the policyholders of Equitable Life. Those of us at the All Party Parliamentary Group on Insurance & Financial Services' recent meetings on Equitable Life were given a flavour of the arguments that might arise if a new body has to be set up.
Of course, it is not only the process that will be open to dispute but the amount of money offered. You can be certain that the government will not want to write a blank cheque (if, indeed, it writes any sort of cheque for this) which is why a process that attempts a case-by-case assessment of loss without a final figure in mind is probably a non-starter. Much more likely is an announcement of a sum available for compensation almost on a take it or leave it a basis. If this is the case then it makes the argument for giving it to the FSCS to distribute even more compelling.
As to the sum the government is likely to put on the table? My bet is on £1bn. It is about a quarter of what the Equitable Members Action Group is looking for but a nice, round figure that might be enough to buy off many of the policyholders anxious for some money in their retirement and before they die.

Is the Equitable Life saga finally staggering to a conclusion? We have had the report of the Parliamentary Ombudsman and are now waiting for the government’s response to that. Back in July when the report came out this was promised for the “autumn” so time is running out. All the signs are that we will get the key decisions before Christmas, however.
In the meantime, both the Equitable Life board and the Equitable Members Action Group have been busy inside Parliament. They have both appeared before the Public Administration Select Committee PASC) and the All Party Parliamentary Group on Insurance & Financial Services and next Tuesday the Liberal Democrat MP Jo Swinson has secured a Westminster Hall debate on the topic.
The two All Party Group meetings have attracted over 30 Parliamentarians and have been surprising in both their tone and content.
The meeting with Vanni Treves (chairman) and Charles Thomson (chief executive) was a rather chaotic affair as the members of the House of Commons present had to leap out to vote three times during the hour long session (on the rather obscure issue of regional select committees). It did, however, give Equitable a very fair hearing and welcomed its four square support of the Ombudsman’s key recommendations of a full apology for the maladministration by the Department of Trade & Industry, Government Actuary’s Department and the Financial Services Authority and the creation of a compensation scheme. The Equitable board also made re-assuring noises about having got the society into a stable position, admitting this had taken far longer than they expected.
The one thing they would not be drawn on was the size of the compensation package, restricting themselves to observing that it could range from “very little to billions” depending on how far the government believes maladministration was the problem and how far the society contributed to its own downfall.
The Equitable Members Action Group, on the other hand, didn’t get as sympathetic a hearing as might have been anticipated. In particular, backbench Labour MPs do not seem to take too kindly to them, one criticising the tone of their lobbying as akin to “the language of an angry 19th century landlord”.
Not surprisingly, EMAG also agreed with the Ombudsman that there had been maladministration a-plenty and that compensation from public funds would be necessary to rectify this wrong. Unlike the Equitable board, however, they were prepared to put a figure on it: £4.6bn.
EMAG surprised some MPs by accepting that the proposed Compensation Commission would take around two years to settle all the cases, rejecting the notion that some fast-track route to early closure of the issue should be put in place. A fast-track option appeals to some MPs but I got the impression that EMAG feels this could lead them down a road towards being forced to accept lower levels of compensation. Where there was some agreement was in the need to avoid a claims process that relies on policyholders submitting detailed claims to a commission. EMAG doesn’t like this idea because it feels that many of the now elderly policyholders would be intimidated by the prospect of filling in lengthy and complex claims forms. At the previous weeks’ meeting with the board, several MPs made clear their unease at a claims-led process because of the scope for this being hijacked by ambulance chasing law firms. The Equitable board seemed content with the prospect of being asked to provide detailed information about the circumstances of its policyholders so that a compensation commission could determine the right settlement figures without people having to submit claims. A degree of consensus there then.
It all comes down to how much money the government will put up and then what process it will put in place for distributing it. There isn’t much consensus on these points.
Some MPs, and I got the feeling the Equitable board, would be happy for the government to short-cut a long-winded compensation process by creating an “assistance” as opposed to a “compensation” scheme with a fixed amount of money that the compensation commission would be told to distribute as fairly as possible. This would avoid the government having to admit liability on behalf of any of the public bodies named in the Ombudsman’s report and skip the potentially lengthy detailed assessment of all the claims from Equitable policyholders.
It would also have the supreme attraction to the government of being able to keep tight – if not total – control over the amount it pays out, eliminating the potential for upward drift if it allows a compensation commission to work through hundreds of thousands of individual cases. The big question is: how much?
Clearly, anything less than £4.6bn isn’t going to satisfy EMAG, the main policyholders’ representative body, although others have suggested as much as £6bn is need to adequately compensate everybody. The Equitable board gently dismissed these figures as being off the scale, but wouldn’t be drawn on one of their own.
My guess is that we won’t see much more than a billion offered and that it will not be billed as a compensation scheme.
As to timing, I can’t see how the government can pronounce on this until the PASC has reported. This is promised by Christmas so pencil in 17 or 18 December for an announcement – and a barrage of follow-up arguments in the new year.

Fourthly, Sir John has responded to an offer of assistance from the parliamentary ombudsman by requesting certain background material to which her report refers. Fifthly, he has replied to correspondence from numerous policyholders and former policyholders. Sixthly, he has interviewed applicants for appointment as actuarial adviser so that his office will have the expert technical support needed. The proposed appointment involves a number of commercial and technical issues that the Treasury is now addressing with its legal advisers. It is hoped that an actuarial adviser can be appointed shortly. Sir John expects to establish a website through which interested parties can keep informed of his work as it progresses and make representations to his office."

Why, oh why wasn't this job given to the Financial Services Compensation Scheme? It has an office, it has staff, it has actuarial experts and it has a website. It also has a track record of moving quickly to deal with unexpected problems that, strictly, fall outside of its terms of reference. Its speedy response to being tasked with sorting out the compensation for people caught by the failure of the Icelandic banks was, for instance, recently praised by the Treasury Select Committee. It was prepared to take on a similar task for Equitable Life. Why wasn't it asked? Simply because it would have meant the Treasury having to put a figure on the sum it was prepared to set aside for compensation. It can't go on ducking this for ever.

The second point that comes out of this debate is a constitutional one that touches on the current crisis over MPs' expenses. Several members who spoke during the debate highlighted the constitutional position of the Parliamentary Ombudsman. It is her reports on Equitable Life that the government keeps ignoring and dismissing. The Ombudsman was set up the scrutinise the work of government and Parliament, specifically to deal with complaints from the public. It is independent and it therefore holds the government and its departments to account on behalf of the public. Almost as Mr Pearson was dismissing the latest Ombudsman's report on Equitable Life the Prime Minister was on his feet at a Downing Street press conference announcing yet another body to offer independent oversight of Parliament - this time specifically of MPs, their pay and expenses. How can anyone have confidence in that if the government keeps ignoring the organisations already meant to be holding it to account?

Sadly, there does not seem to be any resolution to the Equitable Life crisis in sight. If the estimates of another two and a half years before any payments are made are anywhere near right and it is the case that 15 policyholders die every day, then we are looking at nearly 14,000 more people who will die without ever having had their claim for compensation even considered. Where is the justice in that?