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The Equitable Life fiasco

The Equitable Life fiasco still presents a huge dilemma for advisers with clients that are still invested in the closed with-profits fund.

Swift compensation for the victims looks highly unlikely despite the publication of a damning report by parliamentary ombudsman Ann Abraham today calling for exactly that.

Even if the Government does bow to Abraham’s demands for compensation the million-plus potential claimants will have to wait a long time before they find out whether they qualify, and if they do, whether the sum awarded will be better value than transferring their investments elsewhere in search of better returns.

The Chancellor Alistair Darling will not respond to Abraham’s report until October after the parliamentary recess.

He will no doubt have had lawyers plough through the 2,800 pages for legal loopholes to avoid footing as much of the bill, currently estimated at £4bn for as long as possible.

Indeed, the only thing that is predictable is that the Government will stonewall as much as it dares and keep the payouts as low as it dares.

And, of course, the Government’s coffers are not exactly brimming over with fifty-pound notes at the moment.

Equitable Life says it is already too late for the 30,000 investors that it estimates have died in the eight years since investigations began.

Meanwhile Hargreaves Lansdown head of pensions research Tom McPhail has warned that it is far from clear whether it is in all policyholders’ interest to wait for compensation to materialise.

McPhail says it is likely to be “fiendishly complicated” to calculate any compensation owed as many investors in Equitable have actually done better than those in other with profits funds.

Establishing which investors have experienced losses that are directly attributable to regulatory failure will be a laborious task.

Advisers still cannot know whether or not a transfer out of the fund at this stage will exclude their clients from future compensation, yet if they remain in the fund there is also the risk that they will endure years of poor performance on their investment.

McPhail says: “Equitable investors need to take a realistic view of the possible timing and amount of any future compensation payment for their own personal circumstances.

“This needs to be balanced against the costs and benefits of reinvesting their remaining funds elsewhere in order to achieve the best possible growth on their investments.”

Of course, whatever the wrongs and the rights of the case, investors who are cross with the Government for all these years of time wasting have a slight consolation. Labour has managed to delay things right into the middle of a massive crisis of confidence in its ability to govern. And to think they might have got the issue out of the way back in the good old days when they were popular.

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