I received a new update from Mark Hoban MP on the 15th November 2010. I have reproduced his letter on my website for greater clarity.
Eligibility Including Pre-1992 With Profits Annuitants
If a policyholder has since left Equitable Life or plan to before payments are made, that does not affect their eligibility.
If policy holders have a ‘with-profits’ policy or had one during the period of maladministration they may be eligible for a payment:
o If they have made a premium payment between 31 December 1992 and 31 December 2000 they may have sustained a loss; or
o If their policy started between 30 September 1992 and 31 December 1992, and were subject to the policy cuts of 2001 or with-profits annuity cuts of 2003, they may have sustained a loss.
In the case of people who took out With Profits Annuities (WPAs) before 1 September 1992, these policies were taken out before any maladministration could have affected their investment decisions. Therefore this group of policyholders will not be included in the Government’s proposed payment scheme.
However, I do recognise that this group of policyholders found themselves locked into a poorly-regulated Equitable Life and they too were affected by the maladministration that occurred. Sir John Chadwick and actuaries at Towers Watson looked at the impact this had on them by calculating what this group would have received from Equitable Life had there been no maladministration. They concluded that this group of policyholders received more income from Equitable Life than they would have done if it had been properly regulated, even taking into account the policy value cuts in 2003. That is because Equitable Life paid out more to them in the early years than it would have if there had been no maladministration. Even though it paid out less than it should have in later years, the former outweighs the latter.
In the debate I also reiterated the Government’s decision that payments to all policyholders will be tax-free. No income tax will be paid on payments received and those payments will be disregarded for the purpose of tax credits. This includes ensuring inheritance tax is not charged on payments to the estates of policyholders who die before receiving their payments in full. Where a policyholder dies after receiving their payments, the payment will be absorbed into their estate and subject to inheritance tax in the usual way.
With regard to means-tested benefits, lump sum payments under the scheme will be classed as capital. In the welfare system, capital limits do not immediately cut off eligibility for benefits – they work on a sliding scale, gradually reducing support for individuals with larger assets. We expect the majority of policyholders’ eligibility for benefits to be unaffected by the payments.
As With-Profits Annuitants, who are being compensated in full for their relative loss, will be receiving an ongoing regular payment to replace the income stream they have lost, the payments to this group will be treated as income for purposes of means-tested benefits. This is fair because it reflects the structure of the policy they bought, which gave them a regular income stream.
Over the past months, I have given careful consideration to finding the right delivery partner to help make the payments to policyholders. Having looked at a range of options, my preferred option is to use National Savings & Investments – NS&I – to deliver the scheme. There are many factors that make NS&I an appropriate delivery partner for this scheme. As part of their everyday functions, NS&I make millions of payments to customers and already have in place the processes and infrastructure necessary to carry out the functions that this scheme will require. Using NS&I would allow us to draw upon existing Government relationships and contracts, thereby providing value for money to the taxpayer.
Going forward, I hope that the Bill will receive Royal Assent by the end of this year. The Independent Commission on Equitable Life is due to report to me in late January and, following that, I will incorporate its recommendations in the design of the scheme, which will then be scrutinised by Parliament in the spring. This will allow the delivery partner to start payment preparations early in the New Year and it is our ambition to make the first payments by the middle of the 2011.
Financial Secretary to the Treasury
I spoke in the Equitable Life debate on 14 September:
I wonder whether Chris Williamson has been listening to the same debate as I have. I hope that his constituents do not read his speech in isolation, because in the debate to which I have been listening Government Back Benchers have made it absolutely crystal clear that they will stand up for the members of Equitable Life.
I support this short, technical Bill, but I should like to make some wider points. I endorse many remarks that previous contributors have made, but I disagree on a couple of minor points. Those points are on the margins but, in the long term, absolutely vital, so I hope that Members will bear with me.
One key point is that the state manufactured the problem, or at least manufactured it to the extent that it is with us today: the state enabled Equitable Life to continue to attract new business when it should have folded. If I have understood correctly what I have been told, I should note that if Equitable Life had folded at the first opportunity, a smaller number of policyholders would have received 90% of their due, many years ago. Instead, state action means that very large numbers of people today are concerned about receiving much less, many years after the fact.
In government we have been handed a situation in which there is no doubt that the state must compensate Equitable Life policyholders, and it must do so honourably. That is what many of us signed up to in good faith, even though we knew that the cupboard was bare. The simple fact is that a fair sum must be found.
However, we should not pretend-as, I am afraid, Equitable Life’s own briefing note does-that by paying a demonstrably fair level of compensation, the Government would, at a stroke, restore people’s faith in saving for their retirement. This is a difficult point, but I should like to make it anyway. It is vital for the future that we reaffirm that the Government have nothing to give without first taking it. The state can only tax, borrow or debase the currency. It can only transfer wealth; it cannot create it. In the case of Equitable Life, the state has shown itself incompetent to supervise pension funds and incompetent to clean up the mess that it makes. It also turns out that the state is incompetent to run pension funds.
In my speech on 22 June, I cited “A Bankruptcy Foretold”, a paper by the Institute of Economic Affairs that set out the true scale of the national debt. I am afraid that the numbers have been updated over the summer, as the Office for National Statistics released some further figures. Writing on the IEA’s website, the author, a Mr Nick Silver, who is an accomplished actuary, points out that the state now owes, including pension liabilities, a staggering £6.5 trillion. To save Members from reaching for their calculators, I should say that full compensation for Equitable Life victims would amount to one tenth of 1% of our current national debt, including pension liabilities.
Having considered the assumptions about how that pension liability might be met, Mr Silver writes:
“Looked at this way, the UK is effectively an enormous unfunded and effectively bankrupt pension scheme, with a large speculative holding in some banks and a sideline in running a small island state off the northern coast of France.”
Perhaps he exaggerates, but having read his paper I am afraid I must suggest that he does not. That is what we have been reduced to.
We must see the Equitable Life situation in context-and it works both ways. Government Members know that the billions add up, but I am afraid that we are getting to a point at which the trillions are adding up. In the short term, we must absolutely deal with this problem; we must maintain our honour and help the members of Equitable Life.
It turns out that the state is not competent to supervise pension funds or run them. Bearing in mind the events surrounding the banking system, other Members might agree that we can fairly say that the state is not competent to supervise financial services at all. I believe that we need sound financial law, not arbitrary intervention by regulators. I am happy to say that tomorrow my hon. Friend Mr Carswell and I will introduce a Bill that will begin to indicate the right direction of travel.
In this Parliament, we must deliver an honourable settlement for Equitable Life policyholders. There is absolutely no doubt that we are under an obligation to do so. But let us not pretend that wealth transfers can encourage saving or that the Government have an inexhaustible horn of plenty from which to insure everyone’s risks at the expense of everyone else. If we are truly to honour our constituents, we must face the world as it is, and together construct a more hopeful future, in which the Government cease to trample the forces of social co-operation thereby manufacturing problems greater than those that they face.
In the meantime, it is clear from what we have heard today that if the Government give EMAG members a haircut of very much more than 30% to 40%, the Government will have a very rough ride.
I will post further updates here as they occur.
I have had many letters and emails regarding the collapse of Equitable Life (EL) and the decade long delay in coming to a final resolution. Let me set out the current position.
The previous Government agreed a payment scheme should be established, but this has taken far too long to come about. Therefore, the new Government has confirmed its commitment 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.
A legislative solution to EL policyholders was mentioned in the Queen’s Speech and a bill will shortly be put before the House to enable payments to be made to those affected.
While the Government believes the design of the scheme should be developed by an independent commission, two key points can be confirmed: that there should be no means testing; and that the dependents of deceased policyholders should be included in the scheme.
In addition, the final report from Sir John Chadwick will be received by mid July following his request for a short extension to the initial time table. This necessary delay will enable Sir John to respond to issues raised by the independent actuarial panel.
After this, the Government will publish Sir John’s final report that includes next steps towards implementing an independently designed payment scheme.
In designing a scheme, an independent commission will draw on Sir John’s work, but it will not be bound by it. The Government recognises, as did the Parliamentary Ombudsman in her report, that the impact of any scheme on the public purse must be taken into account.
In light of the above, it is not possible at present to give individual policyholders information on how the scheme will affect them, but when Sir John’s report is released further announcements will be made. I will keep you up-to-date with new developments via this website.