The government's handling of the Equitable Life disaster has been strongly criticised, but sadly that doesn't mean that policyholders will receive compensation.
So it’s official, if not exactly surprising. Just as press leaks had predicted last week, the Parliamentary Ombudsman’s long-awaited report into Equitable Life has found 'serial maladministration' in the government’s regulation of the collapsed pension firm. The government, says the report, should apologise for a 'decade of regulatory failure.'
The Department of Trade and Industry, the Government Actuary's Department, the Treasury and the Financial Services Authority all failed to serve the interests of Equitable Life’s members and policyholders, says the Ombudsman, Ann Abraham. And, as a result, those who lost out deserve compensation. 'The aim should be to put those people who have suffered a relative loss back into the position that they would have been in had maladministration not occurred,' she notes.
Estimated at around £4bn, the cost of that compensation is a hefty sum. But one that campaigners -- such as the Equitable Members Action Group, and the Fools on the Equitable Life discussion board -- have been battling for ever since Equitable abruptly closed to new business in 2000. Tens of thousands of ordinary people -- including, in the interests of full disclosure, yours truly -- entrusted their savings to the Equitable, and entrusted the regulation of the firm to the relevant government bodies. If those bodies then fell asleep at the wheel -- as the Ombudsman has found -- then compensation is surely deserved.
Europe thinks so. European member of parliament Mairead McGuinness, who chaired Europe’s own committee of inquiry into Equitable Life last year is putting pressure on Westminster. She argues that if the regulator has failed, people deserve to be compensated for the losses incurred.
And there are ample precedents. In the 1980s and 1990s, for example, compensation was paid to those who lost out -- through regulatory failings -- in the Barlow Clowes and Maxwell scandals.
More recently, when the Ombudsman found maladministration in the regulation of the occupational pensions market, the Government coughed up, albeit with extreme reluctance, and only when taken to court. The bare-faced cheek with which they denied liability was matched only by the bare cheeks exhibited by wronged pensioners who routinely stripped to the buff outside Labour Party conferences in an attempt to get their message across.
So will the Government cough-up this time? Certainly, the Ombudsman's report couldn’t come at a worse time. £4bn is a lot of money, and the government may be reluctant to find the cash when the economy is slowing down and tax revenue is suffering too.
Most worryingly of all, from the perspective of impoverished Equitable Life policyholders, were Prime Minister Gordon Brown’s prevarications at his monthly press conference earlier this week. Equitable’s "culpability” in its own collapse had been proved, he noted, conceding that the Government would at least consider the Ombudsman's findings when they were published. The Treasury, commenting on the publication of the Ombudsman’s findings, says only that it will publish a full response in the autumn.
In other words, don’t hold your breath. Nine years after Equitable first hit the rocks, pensioners and savers are still unsure if they’ll see a penny of compensation. And in the meantime, says Paul Braithwaite, general secretary of the Equitable Members Action Group -- and a regular on The Fool’s Equitable Life discussion board -- some 30,000 of those who lost money have died, while a further 15 die every day.
We're all losers
In a broader sense, though, we’re all losers -- Equitable Life policyholders or not.
First, Equitable’s failure is one of a number of pensions scandals of various descriptions that have collectively put people off saving for their retirement. Repeatedly, the Government tells people to save for their old age -- and then does nothing to help those who have lost out by following its advice. Not surprisingly, survey after survey show that people are deeply cynical about the whole question of pension provision, with many putting far too little aside.
Second, repeated regulatory failings damage the trust that people place in the government agencies that are supposed to supervise financial institutions. In the wake of the collapse of Northern Rock, recent moves to clarify the roles of the Bank of England and the Financial Services Authority are very welcome.
But we shouldn’t have to see our television screens filled with long queues of savers desperate to withdraw their money -- or pensioners stripped to the buff at Labour Party conferences -- to achieve that better regulation.
Today, the Parliamentary Ombudsman has found the Government guilty of presiding over maladministration in its supervision of a once-major financial institution. Let’s hope that no future government fails so disastrously.
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