1. Equitable Life is the world's oldest mutually
owned insurance company. It used to be known by its reputation
as a leading provider of life insurance and pensions. For many
years a substantial proportion of the policies that were sold
entitled policyholders to purchase an annuity at their retirement
which then guaranteed minimum payments for the rest of their lives.
A decline in the profitability of Equitable Life's investments
made this commitment increasingly difficult to fund. Its former
management decided, amongst other things, to implement a "differential
terminal bonus" policy as a way of reducing the costs of
the guaranteed rate pensions.
2. The new bonus policy was challenged in court in
1999; critically, it was found to be unlawful by the House of
Lords in July 2000. Faced with an estimated £1.5 billion
shortfall in its reserves and unable to find a buyer, Equitable
Life closed to new business on 8 December 2000, leading to major
policy value cuts in July 2001 and subsequently. A number of investigations
have since taken place, each with different remits, none of them
overarching. The Parliamentary and Health Service Ombudsman ('the
Ombudsman') initially rejected complaints of maladministration,
but she began a second and far broader investigation into the
prudential regulation of Equitable Life in July 2004.
3. The Ombudsman's report of this second investigation,
Equitable Life: a decade of regulatory failure, was published
in July 2008. We are
responsible for reviewing each special report of this kind and
our inquiry has been centred around its key conclusions and recommendations.
We have taken evidence from groups representing the interests
of Equitable Life's members, former regulators (including the
Chair of the Financial Services Authority at the relevant time),
expert commentators and HM Treasury. We are grateful for their
contribution to our consideration of what are challenging and
complex issues about accountability and redress.
4. We had thought that the Government would publish
its response to the Ombudsman's report on Equitable Life in time
for us to consider it as part of our inquiry. We now understand
that it will be available only very shortly before the House rises
for Christmas. We have therefore decided to publish this Report
as speedily as possible, so that debate on the Government's responseand
possibly even the response itselfcan be informed by our
views. Whether we need to return to these issues in the New Year
will depend on what the Government has to saybut if it
gives us any cause for concern, we will not hesitate to do so.
5. There were more than 1,500,000 members of Equitable
Life at the time it was forced to close to new business in December
2000. Over the last eight years many of those members and their
families have suffered great anxiety as policy values were cut
and pension payments reduced. We acknowledge the determination
of all those individuals who have campaigned tirelessly to find
out what went wrong and to seek recompense from those responsible.
Many are no longer alive, and will be unable to benefit personally
from any compensation. We share both a deep sense of frustration
and continuing outrage that the situation has remained unresolved
for so long.
1 Parliamentary Ombudsman, Fourth Report of Session
2007-08. HC 815 (henceforth 'Ombudsman's report') Back