If the Government does compensate the policyholders who lost up to half their money, the Equitable Members’ Action Group estimates this amount to be around £4.6 bn.
No small change then, as Chancellor Darling recently told Cabinet ministers there will be no more money for public services as taxpayers are reaching the limits of what they are willing to pay. The £4.6bn full compensation amount equates to roughly 2p on the basic rate of income tax.
This worries me, if the taxpayer is going to be held accountable for every case of regulatory failure that occurs, where will it end? What should be done about the other life fund closures that happened around the same time, some of which have involved policyholders losing even bigger amounts?
Regulators should stop things from going wrong in the first place or limit the damage, and not rely on public cash to pay compensation to sort out the problem.
Equitable is one of the biggest prob- lems that I have ever seen affect the invest- ing public.
Abrahams’ report suggests that the Financial Ombudsman Service could make the calculations of loss and recommend redress. From the Equitable life compensation claims that have gone through the FOS to date, only 50-60 per cent cases were found to have suffered a loss.
Any compensation paid out has been calculated as if they had not invested in Equitable Life policies but invested into a comparable policy of another insurer.
But how much of all of this can be attributed to poor regulation? The report says that the Department of Trade and Industry, the Government Actuary’s Department and the Financial Services Authority were all “asleep during the 1990s through to December 2000.
During this time, I was learning how to be an independent financial adviser and, whatever training or guidance I received from IFAs far wiser than me, the message was always the same – do not trust an insurer that will not deal with IFAs.
I recall thinking this was harsh as at the time Equitable’s guaranteed annuity rates and with-profits bonus declarations were higher than the competition. “Look at Equitable’s report and accounts and explain the huge gaps in liabilities to assets.” I would be told.
Even I as a Liverpool girl new to the IFA world, I could understand the huge potential for massive trouble ahead. Perhaps it is a shame that my IFA colleagues and myself, who were all trying to improve our clients’ financial wellbeing at the time, were not regulators nor employed by Equitable’s auditors at the time for we might have been able to stop the financial ruin.
When I help IFAs in a training capacity these days, I pass on the same wisdom I received – look very closely at insurers that do not distribute through or deal with IFAs.
Meanwhile, Vanni Treves chairman of Equitable, who must be respected for becoming the face of what is left of the firm now worth over £3bn, wants to sell the business. I believe the sooner that Equitable is sold the better for all those who remain trapped in its products in a closed with-profits fund.