Equitable Life Update

Prior to the government reacting to the Ombudsman Report a debate was held in Westminster Hall. The text of the response of the Minister responding is set out below for information.

I will add my own thought when the government have reacted to the Ombudsman Report and set out their thoughts in the Ministerial Statement. We need to know what action the government is prepared and obliged to take.

25th November 2008

Westminster Hall Debate Ministerial Response

12.17 pm
The Economic Secretary to the Treasury (Ian Pearson): I congratulate the hon. Member for East Dunbartonshire (Jo Swinson) on securing the debate. I know from my postbag that the events at Equitable Life are of concern to the constituents of many Members. Indeed, the fact that 30 Members of Parliament have attended today’s debate clearly demonstrates the strength of feeling about the issue and its importance.

I do not propose to discuss the situation prior to the issuing of the ombudsman’s report, or the criticisms made by some hon. Members that the Government have acted in bad faith or have been dragging their heels—other than entirely to reject those accusations and say that such comments are unfair and uncharitable. However, I shall say something about the period since the ombudsman reported.

I shall summarise the background to the debate. Equitable Life is well known to many Members. Established in 1762 as the world’s first mutual life assurance society, it was a major player in the developing market for personal pension and additional voluntary contribution plans during the 1980s and 1990s. The society’s products were principally based on its with-profits fund.

Mr. Chope: Will the Minister cut out the guff and get to the point? When will the Government respond to the ombudsman’s report?

Ian Pearson: As I shall explain in a few moments, the Government will shortly respond fully to the ombudsman’s report.

From the late 1950s until June 1988, Equitable Life sold significant volumes of with-profits policies that included a guaranteed annuity rate. Those policies provided
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a fixed rate at which the policyholder was entitled to purchase an annuity on the maturity of his or her policy. After that date, all policies were sold without the GAR. During the 1990s, the GAR became increasingly attractive as the income that would be available from an annuity purchased in the market fell, for the first time, below the guaranteed rate, with resulting financial implications for Equitable Life.

Equitable Life’s policy of reducing terminal bonus payments to policyholders who exercised those valuable guarantees when purchasing their annuities was tested in the courts as a result of a growing number of complaints from policyholders. In July 2000, the House of Lords found the practice unlawful. In order to meet an estimated liability of £1.5 billion resulting from the judgment, the society decided that it was in the best interests of members to seek a purchaser. Following Equitable Life’s failure to find a buyer, the board of the society announced in December 2000 that the only realistic option open to it was to stop writing new business. The focus of policyholders’ concerns has been whether Equitable Life’s closure to new business could have been prevented.

Mr. Tyrie: Instead of reading out a summary of what we all know happened—it can found in the Penrose report, ministerial speeches over the years and, in more detail, in the ombudsman’s report—will the Minister get to the point? Perhaps he could read out the last page of his brief and tell us when the Government will respond to the report.

Ian Pearson: The hon. Gentleman has been very active in this matter, but it is right to set out the context. [Hon. Members: “We know the context.”] I assure hon. Members that I shall not dwell on it unduly.

Lord Penrose’s investigation, published in March 2004, concluded that Equitable Life’s own actions ultimately precipitated its financial difficulties in the summer of 2000. Lord Penrose also found regulatory system failures, but concluded that they were secondary. The parliamentary ombudsman’s second investigation into the regulation of Equitable Life’s with-profits fund, under the Insurance Companies Act 1982 regime, looked exclusively at the role of the prudential regulator and the Government Actuary’s Department. Given that the remit of the parliamentary ombudsman, set out in law, is limited to the investigation—

Mr. Crispin Blunt (Reigate) (Con): On a point of order, Lady Winterton. When a Minister continues to repeat previous ministerial speeches and puts on the record matters that are already on the record, at what point do his remarks become repetitious and out of order?

Ann Winterton (in the Chair): The hon. Gentleman has served in the House for a long time and knows perfectly well that that is not a matter for the Chair.

Ian Pearson: Thank you, Lady Winterton. It ill behoves the hon. Gentleman, who has only just entered the debate, to make spurious points of order.

Let me return to the point. [Hon. Members: “Get on with it.”] In July, the ombudsman published a substantial report that was the culmination of her four-year investigation, as we heard from hon. Members. I fully
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understand why, after such a lengthy investigation, Equitable Life policyholders, and Members, are keen to know the Government’s response.

Jo Swinson: We are particularly keen because the Government said that they would tell people by the autumn. We are well passed autumn, so when will the Government respond?

Ian Pearson: I shall explain, if the hon. Lady will allow me. She will know that I have been Economic Secretary since September, but the ombudsman produced her report in July, and we have been considering it since then.

Daniel Kawczynski: For the record, will the Minister confirm whether he had discussions with the Chancellor on Equitable Life, and whether he asked the Chancellor to address the issue in yesterday’s pre-Budget report?

Ian Pearson: I have had discussions with the Chancellor on Equitable Life and on when we could make a statement in the House. Hopefully, I or the Chief Secretary will make one shortly.

Hon. Members will appreciate the significant factual and technical complexity of the issues investigated by the ombudsman and of the details of her 10 findings. As the House would expect, it has been necessary for the Government to take time to consider the report in detail. Instead of making partisan political points, the Government should get the detail right and respond in a mature and thorough way, which is what we plan to do.

Mr. Drew: I hope the Government will respond expeditiously. What does the Minister think are the costs to which other parties have committed themselves in order to compensate Equitable Life policyholders?

Ian Pearson: My hon. Friend makes a good point. I have not made an estimate of the Conservative party’s or Liberal Democrat’s positions. I have been trying to focus on how we can reach a decision on all the findings in the ombudsman’s report and produce a statement to the House.

Mr. Phil Willis (Harrogate and Knaresborough) (LD): Has the Minister instructed his officials to assess possible
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compensation payable to Equitable Life policyholders? Part of his final decision, which he will eventually put before the House, will depend on those figures and the Chancellor’s agreement. Has he done that investigation?

Ian Pearson: The hon. Gentleman will be aware that it is not Government practice to provide a running commentary on policy discussions with officials.

I have heard calls today for the Government to accept the ombudsman’s recommendations, including her central recommendation that the Government should establish and fund a compensation scheme with the aim of restoring policyholders who suffered a relative loss to the position in which they would have been, had the maladministration that she found not occurred. In considering those recommendations, the Government must weigh in the balance the interests of policyholders and taxpayers generally. However, hon. Members will appreciate that, until a decision is announced, I can say little more about the detail of the Government’s response, although it has been helpful to hear today the strength of feeling among them.

Mr. Tyrie: I mean no disrespect to the Minister. I mentioned in my speech what a difficult task he had on his hands replying to a debate on a policy for which he no doubt had no direct responsibility. However, does he not understand that making the kind of speech that he is making, with such blatant and continual obfuscation, tarnishes the respect for politics, politicians and the way we conduct our business in this place? That cannot carry on. He must at least agree to write to us, within a week, with the date on which we will receive the Government’s response.

Ian Pearson: I have great respect for the hon. Gentleman, and I hope that he appreciates that neither the Government, nor I today, have been guilty of obfuscation. I am trying to reach a position whereby we can shortly make a ministerial statement to both Houses. It is right that we respond, and we said that we wanted to do so by the autumn. I appreciate that we are getting close to the end of autumn, but we will make the statement very soon. I am sure that hon. Members will want to attend and to ask questions of the Government when we announce details of our full response to the ombudsman.

The Penrose Report has now been published and and contains a great deal of information. It is clear from the Report and the Statement made to the House of Commons that further legal action may be forthcoming either from the Fraud Office or the DTi. I am sure there will be a great deal of media speculation about what happens next. The complexity of the Penrose Report demonstrates that it is not possible to act in haste. I will contine to monitor the situation and developments on behalf of the 2 constitiuents who have contacted me about this matter. Some have jumped on the bandwagon with this important issue with hasty EDMs. Until further work is carried out by other bodies I will not join those who seek short term opportunism from a very serious and sober issue.

March 2004

I have taken up several complaints regarding the Equitable Life situation with the Parliamentary Ombudsman over the last few months.

The Ombudsman has now reported back his findings from the investigation that was held.

If you would like to read the report and its findings, please visit:

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