Money Blog: Why the Government Must Compensate Equitable Life Savers
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Home » Money Blog » Recession Watch » Why the Government Must Compensate Equitable Life Savers
Why the Government Must Compensate Equitable Life Savers
By Nic Cicutti
Jul 17, 10:01 AM
Today the long-awaited report into the effective demise of Equitable Life – one of the UK’s oldest insurers – has been published by the Parliamentary Ombudsman.
Its aim is to look at whether official bodies, including the Treasury, the Department for Trade and Industry and the Financial Services Authority (FSA), that were supposed to be regulating the company’s activities in fact failed to do so. And the Government agencies have been found guilty as charged.
The hopes of hundreds of thousands of former and current policyholders are hanging on this report. If it can be shown that all these government agencies failed to show the right level of oversight of Equitable Life, they will be demanding compensation.
The report has been almost four years in preparation and concludes that ministers should set up a compensation fund for policyholders in the failed institution. The amount owed could top £7bn – another drain on the Treasury as it struggles to deal with the fallout from the credit crunch.
So – will the policy holders get what they deserve? I doubt it – and here’s why.
First off, let me declare an interest: I am an Equitable Life policyholder. However, even if, by some strange quirk the report says that I am entitled to compensation, I won’t be claiming it.
Why? Well, in my case I went into it with my eyes open and became a policyholder in 1999. Back then, the company was widely admired for its above-average payouts on maturing policies. But it faced a legal challenge from a group of members who figured that they were owed extra payments that had been “guaranteed” to them when they first started.
I figured one of two things would happen: either Equitable Life would see off the court challenge. Or it would lose, in which I stood to gain a big demutualisation windfall because the company would then be sold off to the highest bidder.
In fact, I was wrong. The company did lose its case in the House of Lords, but when it came to a sell-off, its finances were in such a dreadful state that no-one wanted to buy it. So bang went my money.
But at least I “knew” what I was doing. For hundreds of thousands of people who were less “sophisticated” (that’s a joke!) and were saving into pensions or setting money aside for a rainy day, the assumption was that the company they were investing their money with was financially sound.
They were led to believe that there was a swathe of government agencies in place to ensure that Equitable Life’s senior executives did not mislead, or lie, or cook the books. That’s what regulation is all about.
In fact, as previous reports have already established, although all these agencies were in place and they had serious doubts about many of the things Equitable Life was up to, they didn’t dig deep enough to find out more. They were under-prepared and, frankly, just not up to the job.
And the Parliamentary Ombudsman’s has now confirmed that the savers affected deserve justice. It isn’t enough to simply say: “The government can’t afford it.” If that were to happen, any future government will always be able to plead poverty when it comes to its own failures, not just in this but other cases.
For the sake of those who, unlike me, were not mugs, I hope they get the compensation they deserve.
User Comments
Michael 19 July 2008, 15:56
There is an inherent risk in all financial matters – investors are no different. When returns are exceeding expectations these are pocketed and not offered to the Government.
The Government’s money is of course ours. Why should money be taken from the NHS, Education etc. to compensate these investors? I, like many others, have lost money on stocks and shares……can we all also put in a claim?
Get in to the real world!
Craig 17 July 2008, 16:12
does that mean that any other company that these goes belly up, that employees, investors etc are entitled to pay outs?
Northern Rock best example…….
NO i dont think so
An employer of mine owned me 25k in owed wages and pension payments, when i took them to court they folded. It cost me 2 grand to get them there. What did i get back from the government a paltry 1k.
So how does this differ?
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