Equitable Life - Public Administration Committee Contents

Written evidence from Equitable Life Trapped Annuitants (ELTA)

  At the request of Mr Bernard Jenkin, Chairman of PASC, and in light of the timescale involved, this submission is confined solely to the most unsatisfactory headline issues in respect of the current position and a brief outline of the unique aspects of the With-Profits Annuitants (WPAs).


  1.1  It is a widely held view that the Chadwick Report is a product of his restricted Terms of Reference rather than a basis to implement the Parliamentary Ombudsman's recommendations. This is recorded clearly in his Report and within the Actuarial Advice provided to him by Towers Watson. It is also recorded that Sir John Chadwick set further parameters on Towers Watson to govern the actuarial advice that they supplied to him.

The Ombudsman's letter to Sir John dated 20 August 2009 stated "As I see it, any limitations that you might feel constrained to impose regarding eligibility for the payments to be made to those affected by the Equitable Life affair do not derive from the nature of my findings and recommendations. Any such imitations instead derive directly from the limited approach adopted by the Government in its response to my report."

  1.2 It is clear as a result that generally (and in particular due to those restricted Terms of Reference) the outcome of Sir John's Report does not reflect the intention of the Parliamentary Ombudsman who has commented most damningly:

    "In light of the new Government's commitment to implement that recommendation in full, the approach embodied in the Chadwick report... cannot provide a basis for the implementation of my recommendation." (Parliamentary Ombudsman in letter to Members of Parliament 26 July 2010)

  1.3  Further, she has stated that Sir John's proposals "if acted upon, would not in any sense enable fair and transparent compensation to be delivered." (ibid)

  1.4  Additionally, she has recorded that the Chadwick report "misinterprets central parts of the conclusions outlined in my July 2008 report and has ignored others" and "the Chadwick proposals seem to me to be an unsafe and unsound basis on which to proceed". (ibid)

  1.5 It is also clear that the Coalition Government has repeatedly stated that it is committed to the implementation of the Parliamentary Ombudsman's recommendations:

    "We have been clear in our support for the Ombudsman's recommendations. That is our position today and would be our position if elected at the next general election." (Mark Hoban MP in the Opposition Day Debate 21 October 2009)

    "We are committed to implementing the Parliamentary Ombudsman's recommendation." (Mark Hoban MP 22 July 2010)

  1.6  In contrast, an implementation of the Chadwick Report and the resulting discounted compensation levels set out in Towers Watson's letter to the Treasury dated 21 July 2010 will not bring matters to any form of satisfactory conclusion and will be challenged as a clear failure to implement both the Parliamentary Ombudsman's recommendations and the Government's pledge to do so.

  It must surely be in the interest of the Coalition Government to bring this matter to a close. The advice set out in the Chadwick Report will not meet that fundamental criterion.


  2.1 As at 31 December 2000, it is recorded that there were 68,000 With-Profits Annuity policies out of a total of over 1.3 million. This appears a small number but the position of the WPAs is important firstly because of the unique nature of their purchase and secondly the size of their losses (which is referred to below under Headline figures).

  2.2 There are specific issues related to With-Profits Annuity policies. The purchase of such a policy was an irreversible transaction with retirement monies intended to produce a level of income for the balance of the WPA's life in circumstances where ordinarily there would be no opportunity to supplement any shortfalls in income from future employment. The WPAs are all elderly—with the significant majority in their mid to late 70's and older.

  2.3 Sir John Chadwick accepts that the WPAs have been disproportionately affected and that their position is particularly compelling—see the references in his report for instance at point 4.80 (page 130), point 7.71 (page 186), point 9.8 (page 196), point 9.13 (page 197), point 9.15 (page 198), point 10.26 (page 207) and footnote 936 (page 207).

  2.4 The disproportionate impact and their unique position surely must be beyond serious contention. The idea of "shaving" their true relative loss as has been done in the Chadwick Report by the adjustment of the parameters of the Parliamentary Ombudsman's recommendation cannot be acceptable to any fair minded person—particularly in light of their irreversible position and the importance of Equitable's financial status to them.

  The WPA's occupy a special and unique position amongst the policyholders of Equitable Life and merit special and unique treatment to address their losses.


  3.1 Towers Watson provide a headline loss figure of £4 to £4.8 billion. This is the only worthwhile figure provided. All other figures are a consequence of the adjustments in the Chadwick Report. It is understood that the WPAs component of that figure is around £650 to £750 million.

3.2 Indeed, the insanity of the restrictions to which Chadwick has been working result in around 30% of With-Profits Annuity policies (19,490 pre-dating the 1992 cut off) not being included in that figure and not getting any compensation at all. It must be remembered that the Parliamentary Ombudsman advised Sir John Chadwick that:

    "In essence, the view expressed in my report is that, absent the serial maladministration I had determined occurred from July 1991 onwards, no reasonable investor would have joined or remained with Equitable Life throughout that period—going instead to another life insurance company." (Parliamentary Ombudsman in letter to Sir John Chadwick 20 August 2009)

  3.3 Further the WPAs who purchased With-profits Annuity policies pre-dating 1991 have also suffered significant losses as a result of the maladministration (as illustrated by relative performance against the Prudential with-profits annuity in the relevant later years) because they were trapped within the product and could not escape the effect of that maladministration.

  Therefore adjusting for those policies omitted as a result of the Chadwick process produces a headline figure (assuming that the Towers Watson calculations are correct) of approx. £1 billion.

  3.4 According to these figures, the WPA's represent approx 6% of the policyholder community but approx 25% of the relative losses. This clearly illustrates the significance of With-Profits Annuitants and why it can be stated that they are disproportionately impacted by the maladministration. It must be recalled that the Parliamentary Ombudsman has made it entirely clear that the interpretations that she intended to omit some policyholders from her recommended compensation are entirely misplaced.

  3.5 Towers Watson have provided some sample calculations to ELTA's representatives following our recent meeting. However, there are queries outstanding on various assumptions that TW have to make which would allow those sample calculations to be considered more fully. These include:

    (i) Mortality assumptions;

    (ii) the critical assumptions that have to be made about the Future Bonus rate declarations by the Prudential, both for the ELAS sub-fund (within which the ex ELAS annuities are held.) and the Prudential With Profits fund and similarly for the Scottish Widows; and

    (iii) What discount rates that should be applied to future losses.

  3.5  Even apparently small changes in the assumptions of these values have a profound impact on the loss calculations.

  3.6 The methodology adopted to headline loss appears reasonable subject to further consideration but the final position cannot be judged until that further information is supplied. Clearly, this cannot be a fair and transparent process unless and until sufficient detail is supplied to truly judge the calculations made.

  It cannot be considered fair or reasonable that some WPA's who purchased their annuities before the so-called cut off date and who have suffered equally with all other WPA's should be denied any share of the compensation payment.

October 2010

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