The Equitable Life saga and the long-awaited report by the Parliamentary Ombudsman into what went wrong at the company appears to have led to a break in that consensus, with differing views on what should happen next.
I do not really want to go into detail about the report itself. Its contents have been picked over by all the media.
What seems clear is that ombudsman Ann Abraham has published one of the most thorough demolitions of the various regulatory agencies and the way they failed in their supervision of Equitable Life. Faced with such information, the challenge for personal finance journalists is deciding what we would like to happen next.
There are two basic approaches. One is to say policyholders should be paid compensation based on the fact that the various regulatory agencies failed dismally to do the job they were set up to do protect consumers.
The other position is to say you do not believe that the individuals concerned should be paid any compensation. Somewhat to my surprise, this is the view taken by a number of influential colleagues whose opinions I otherwise hold in high regard.
What worries me about this position is the way it leaves as hostages to fortune all of us who write about consumer issues.
For example, to dismiss policyholders’ claim for compensation on the grounds that they are middle class or that they are lawyers, judges and even journalists, effectively means that justice should no longer form the basis on which people are entitled to redress.
That is an intriguing new definition of consumer protection, which. if applicable in this case should perhaps be extended to other areas of financial services, for example, car insurance. If some uninsured driver were to smash into an esteemed colleague’s Ford Fiesta, maybe we should turn down his or her claim on the grounds that they are a journalist.
Then there is the issue of how otherwise well-off Equitable policyholders are, as if that should disqualify them from compensation. The assumption seems to be that the entire one million former Equitable membership was a homogeneous well-off group of people.
Yet figures I have seen in recent days suggest that the average maturing pension pot held in Equitable was £46,000. That is still a significant amount but hardly an enormous one. As with all averages, we can be sure that the majority of Equitable policyholders invested sums worth much less than that.
Even if it were true that some policyholders were better off than others, is this sufficient grounds for refusing redress to all of them, including those who have lost big chunks of their pensions because of regulatory failures?
Moreover, to say that because occupational pension scheme members recently compensated by the Government after an earlier ombudsman’s report received “only” 90 per cent of their final-salary pensions, therefore Equitable policyholders should receive nothing, seems to me to be an astonishing leap of logic.
If the concern really is that the better-off should not receive money, why not cap the amounts paid or means-test them?
Another of my colleagues suggests that because many of the policyholders were accountants, they should have spotted something was wrong with Equitable.
Leaving aside the fact that at least 95 per cent of those affected by its near collapse were not accountants, in the period up to 1998, most of the Government Actuary’s Department failed to spot what was happening. Why would an accountant have a greater understanding of Equitable’s bonus allocation strategy than its prudential regulators?
Then there is the question of investment returns. For some of my colleagues, the fact that investment returns on a maturing Equitable policy deliver higher growth than a handful of appalling insurers means that policyholders should not be compensated.
The problem with that approach is that the figures I have seen do not look at key points when Equitable was pulling money into its funds. The fact is that Equitable’s greatest success in attracting funds came just before the train hit the buffers. For the vast majority of policyholders, even those returns are a myth.
Finally, there is the question of affordability. A number of colleagues have expressed sympathy for policyholders, saying they should perhaps be offered an apology but that the Government cannot afford a £4bn compensation bill in the current economic climate. This ignores the fact that the Government has dragged out the issue since 2000, refusing to hold one single inquiry into what went wrong, deliberately restricting Lord Penrose’s remit to exclude regulatory issues and holding back the ombudsman’s report for years.
For the Government to be rewarded for its delaying tactics by denying appropriate compensation to policyholders would be the ultimate injustice in this sorry saga.
We owe it not just to Equitable Life members but also to future victims of financial scandals to ensure that this does not happen.
Nic Cicutti is an Equitable Life policyholder but will not be applying for compensation. He can be contacted at firstname.lastname@example.org