Equitable Life policyholders' compensation hopes were dealt a severe blow this week following Treasury Financial Secretary Ruth Kelly's address to Parliament on the publication of the Penrose report.
Policyholders had been relying on the report to force the Government to admit regulatory failure and offer compensation but Kelly dashed those hopes on Monday when she stressed Penrose's comments that the society was “the author of its own misfortunes” and that regulatory system failures were “secondary factors”.
Penrose's long-awaited report points to a £4.4bn black hole in Equitable's finances, the result of overpaying bonuses before the House of Lords ruling in 2000, and that the firm's move to recover the cost of its annuity guarantee by slashing final bonuses was unlawful.
The report illustrates a board too unskilled to recognise bad decisions being made by executive management.
Kelly said the Government would be moving to draft legislation to “remove any possible concerns relating to unlimited liability potentially facing Equitable and some other policyholders”.
Joint policyholder action group E7 spokeswoman Liz Kwantes says she is still hopeful of Government compensation, saying “I do not think they can wriggle out of it”, suggesting at one stage that Kelly said there would not be an inquiry into Equitable.
Equitable Late Contributors Action Group spokesman Paul Weir says: “The Treasury spun the headlines so they read that Equitable was the author of its own downfall. We know the management screwed up but the regulators failed us too.”
Kelly said: “Lord Penrose accepts that even had a different, proactive regime been in place earlier, no regulator can guarantee to protect consumers against concealment and manipulation.
“Indeed, the losses suffered by policyholders are attributed by Penrose to decisions that were made by the management of the society from the early 1980s onwards.”
What Penrose report says
The House of Lords' decision in July 2000 precipitated Equitable's closure to new business but it was already facing a financial black hole of £4.4bn through overpaying bonuses to policyholders.
”The board had insufficient knowledge and skills to provide an effective challenge to the executive in critical areas.”
”There was a general failure on the part of the regulators and the Government Actuary's Department to follow up issues that arose in the course of their regulation of the society and to mount effective challenge of the management.”
”This work (by the FSA to update its rulebook and learn lessons from Equitable) has sought to anticipate many of the lessons that might be drawn by this inquiry and it should come as no surprise that it has largely succeeded in that.”
“The society's uniqueness lay in the approach adopted by its management, not in the essential characteristics of its business.”
Lord Penrose makes no allegation of maladministration or of negligence against the FSA.