Government announces payment to Equitable Life policyholders
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Issued 20 October 2010
The Government announced today that it will make £1.5 billion
available for the Equitable Life Payments Scheme, £1 billion of which
will be paid out upfront in the first three years of the Spending
Review. This is more than four times the final figure that Sir John
Chadwick’s methodology produced.
The Equitable Life Payments Scheme must deliver fairness to
taxpayers as well as policyholders - particularly in light of the
challenging economic circumstances. As the Parliamentary Ombudsman has
said, “it is appropriate to consider the potential impact on the public
purse of any payment of compensation in this case”.
This figure is based on the relative losses suffered by
policyholders, which amount to £4.3 billion. This is the difference
between what Equitable Life policyholders who invested from the end of
1992 onwards received from their policies, and what they would have
received if they had invested elsewhere. The figure encompasses all of
the Parliamentary Ombudsman’s findings of maladministration - which the
Government fully accepts.
The Government had to decide what proportion of this figure it
is fair to ask taxpayers to pay. When affordability is taken into
consideration, it is important that the position of those who have been
hardest hit by their losses is recognised. It is widely acknowledged
that “trapped” or With Profits Annuitants (WPAs) were particularly
vulnerable to their losses, because they were unable to move their
funds elsewhere or to mitigate the impact of their losses through
employment. They are also generally the eldest policyholders.
In light of these factors, the Government decided that a fair
balance between the interests of policyholders and taxpayers would be
• Covering the full cost of relative losses to policyholders
with WPA policies – approximately £620 million in total. This will be
paid through regular payments.
• Allocating as part of the Spending Review £1 billion, to
cover the first three years’ payments to WPA policyholders and payments
to all other policyholders.
WPAs will be paid through regular annual payments for their lifetime,
effectively replacing the income stream they have lost. This will
benefit approximately 37,000 trapped annuitants who have on average
suffered around £16,500 of losses. More than half of these losses have
been suffered by those aged 75 and over.
Financial Secretary to the Treasury, Mark Hoban
“The Government has always been committed to making fair and
transparent payments to Equitable Life policyholders, through an
independently designed payment scheme, for their relative loss as a
result of regulatory failure. The previous Government spent ten years
trying to find a solution to the Equitable Life scandal. We resolved
the situation in just five months.
“We shall be paying in full the category of policyholders who
suffered most from their losses. For other policyholders, we shall be
providing a level of funding for the payment scheme that strikes a fair
balance between the interests of policyholders and those of taxpayers
in the current difficult financial circumstances. We need to continue
the rapid progress that we have made in just five months so we can meet
our aspiration to make the first payments by the middle of next year.”
The Commission will provide further advice on how to allocate
the rest of the payments in January, so that the Government can
continue working towards making the first payments by the middle of
1. In July 2008, the Parliamentary Ombudsman published her
report, which identified maladministration on the part of various
public bodies and recommended a compensation scheme be set up.
2. In January 2009, the previous Government accepted some of
the Parliamentary Ombudsman’s findings and rejected others. It rejected
the compensation recommendation deciding instead to set up an ex-gratia
payments scheme. Sir John Chadwick was appointed to advise the
Government on relative loss. In October 2009, the Administrative Court
made the Government accept some more of the Parliamentary Ombudsman’s
findings, following a Judicial Review challenge by Equitable Members
Action Group (EMAG).
3. In May 2010, the Coalition Government pledged to “implement
the Parliamentary and Health Ombudsman’s recommendation to make fair
and transparent payments to Equitable Life policy holders, through an
independent payment scheme, for their relative loss as a consequence of
4. On 22 July 2010, Sir John’s final report was published. His
actuaries estimated that his methodology calculated losses due to
maladministration at between £4-500 million. Refined calculations now
put this figure at £340 million, compared to the circa £5 billion
quoted by EMAG. The Financial Secretary to the Treasury, Mark Hoban,
stated that he would consider Sir John’s report and provide a response.
He invited representations from interested parties and established an
Independent Commission to advise Government on the fair allocation of
funds amongst policyholders.
5. This issue affects approximately 1.5million policyholders.
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Article Published/Sorted/Amended on Scopulus 2010-10-21 01:18:34 in Goverment Articles