The Government is in danger of missing its March 2014 target to pay all traceable policyholders who lost out following the collapse of Equitable Life.
A National Audit Office report, “Administering the Equitable Life Payment Scheme”, says although the Treasury had to set up a payment scheme in a short space of time, not enough preparation work was done before the scheme went live.
The Equitable Life payment scheme was set up in 2011 by the Government to provide ex-gratia payments to policyholders after the insurer closed to new business and then went into liquidation.
The NAO says the scheme, which is being operated by National Savings & Investments, has paid £577m to the end of March out a total £1.5bn provision for payment to policyholders.
The scheme has made 407,000 payments, and has 664,178 payments worth £370m left to pay.
NS&I estimates 7 to 9 per cent of annuitants and 18 to 20 per cent of investors will not receive payments as they cannot be traced. Overall 17 to 20 per cent of all policyholders will not be found and therefore will not be paid.
The NAO attributes the delay to a failure to develop a detailed plan about how the payment scheme would work in order to make the first payments by June 2011.
The data that Equitable Life provided for individual policyholders was in some cases up to 20 years out of date or incomplete. Around 20,000 to 30,000 records contained inaccurate data.
Just 0.02 per cent of group scheme members have received a payment. Overall only 35 per cent of payments have made to date, with 72 per cent of the payment scheme’s budget already spent.
The NAO says: “Achieving the scheme’s objective to pay all policyholders that can be traced by the end of March 2014 is at risk.
“As the volume of remaining payments is relatively large to make by the time the scheme closes, and there are a number of risks in getting the information to process them, the Treasury and NS&I may find it hard to make these payments by April 2014 given the scale of the challenge.”
The Treasury and NS&I are now discussing how to wind down the scheme by April 2014. The Treasury plans to spend up to £600,000 on an advertising campaign to encourage policyholders to come forward and to explain why the scheme is being closed.