A not very Equitable Life

Yesterday the government was in a hurry to get rid of all remaining business, so it can govern for 82 days without a Parliament to answer. In the process it can lead many to ask the reasaonable question, why can’t our MPs do their main job until well into October? The government used its majority to ensure the Commons had too little time yesterday to deal with the outstanding items, and to send us away for a long time.

Before we went the Speaker wisely granted an Urgent Question on the topic of Equitable Life. It has been the only sign of urgency around an issue where the government has dithered and delayed for all too long. The urgency was to follow up a government promise of a Statement on what compensation it was proposing before the summer recess.

The Chief Secretary to the Treasury gave a pathetic performance. He told us again that the government accepts many of the Ombudsman’s findings of maladministration by the regulators, yet it refuses to offer compensation. Instead he suggested some ex gratia payments to those who have lost out most.

Several of us asked for a deadline for the development of the scheme and for the payments under it. I also asked for some idea of how much would be paid on what basis to the losers. The Minister would not answer any of these basic and simple points.

This most profiligate and spendthrift of governments does at times combine being mean with a dogged determination to do the wrong thing. In the week of the helicopter shortage we witnessed that same lethal combination yesterday over the Equitable Life victims. Even Labour MPs looked astonished at the government’s insouciance, and told the Minister to get on with it.

When I was the Minister in charge of financial regulation, I inherited the Barlow Clowes mess. The findings of the Ombudsman in that case were clear – the regulators had failed. I did not hesitate. We compensated the victims at taxpayers expense, even though the last thing I wanted to do was to increase public spending for the sake of it. I felt we had to, as people had relied on regualtion and it had let them down. It is equally clear in the case of Equitable Life. What is the point of all this regulation, if when it goes wrong the government just walks away?

Yesterday it looked as if the government is happy for more delay, so more people will die who have lost money in this disaster. They looked like a government waiting for an election. I would love to be proved wrong, but I predicted they will not make a single payment before we go to the polls. The Minister did not protest at this. It felt as if the idea of ex gratia payments is just to get them through the Parliamentary embarrassment, and it did not even succeed in doing that very well.

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26 Comments

  1. Posted July 22, 2009 at 7:00 am | Permalink

    I know nothing of Equitable Life.
    How can the government pay compensation, though, when it is flat broke?
    Did these figures come through the filter of the newspapers correctly?
    1. We are currently (not in the future) in debt to the tune of £800 billion? When the Conservatives left office, the government’s annual income was under half that. New Labour have no intention, either, of repaying this vast sum of our money or even recognising it. Who authorised this? Who even discussed it?
    2. Over the week-end no less than 5 government agencies (including HM Treasury) were not properly signed off by the national Audit Office. Trevor Phillips seems to have been engaged in a scam. Was he? Large amounts (£27 billion) appear have been simply missing from the Social Services budget too. The total shortfall of money from these five departments was about the size of the entire budget for the armed forces in a time of war. Where is it? Who has got it? This is a scandal of EU proportions. So why wasn’t it on the front page of every paper and discussed on Newsnight then? Was it even mentioned in parliament?

    • jean baker
      Posted July 22, 2009 at 9:37 am | Permalink

      I’m sure the government is well insured against such compensation claims irrespective of the (reported) £1 trillion debt already racked up.

      If not, the abolition of 90% of quangos and cost transfers would cover their obligation to compensate Equity Life victims.

  2. Brian Tomkinson
    Posted July 22, 2009 at 7:47 am | Permalink

    Labour clearly doesn’t think there are any votes in paying compensation to Equitable Life policyholders.

  3. alan jutson
    Posted July 22, 2009 at 7:48 am | Permalink

    Yes it appears that a Government who wants to push endless Regulation down everyones throat in their quest for control, fails the test of moral responsibility when it all goes wrong.

    Its not only Regulation, it is a whole raft of Taxes, Benefits and Laws.

    The moral compass lost its way a few years ago.

    Time for a new Sat Nav, where hopefully the new navigator will get us back on track, and accept responsibility for his actions.

  4. Acorn
    Posted July 22, 2009 at 8:29 am | Permalink

    Monday and Tuesday were two classic days in the history of our, so-called, parliament. Lots of bad news reports issued that will never be debated, no questions answered. A programme motion to limit debate on how parliament will cede more of its, so called sovereignty, to even more Quangos. I think even Jack Straw was embarrassed by that move.

    Parliament couldn’t even get a by-election in Glasgow! We obviously need another Quango to take over this job as well. Nobody appeared to know what the rules are. Still, I suppose that’s what happens when you don’t have a written constitution and a modern bill of rights and a proper supreme court to defend them both.

    Let’s face it, our democracy is long passed its sell-by date. Is it not time to separate the executive from the legislature and the judiciary? Then get some of those really clever Lords to write a draft constitution for public debate. Other than that, I haven’t got a clue how anything is ever going to change.

    • jean baker
      Posted July 22, 2009 at 9:45 am | Permalink

      Democracy – the right to free speech, choice and elected political representation is the basis of any civilized society.

      Oppressive alternatives – fascism, marxism, communism, Brussels’ dictatorship – which do you fancy for Great Britain and your children ?

      The House of Lords is mainly comprised of Nuliebor loyalists.

    • Jim Pearson
      Posted July 22, 2009 at 9:55 am | Permalink

      Getting rid of Brown might be a step in the correct direction…

      • Number 6
        Posted July 22, 2009 at 1:41 pm | Permalink

        Getting out of the EU is the only step in the right direction. We can remove Brown but he will simply resurface like Kinnock, Mandelson etc in the EU – still on the gravy train and still screwing the country over.

  5. jean baker
    Posted July 22, 2009 at 8:52 am | Permalink

    John,

    To add insult to injury, victims include NHS employees who transferred their pension funds to Equitable Life in line with government advice.

    Yesterday’s ‘performance’ illustrates the government’s contempt for the Ombudsman’s rulings. Conversely, never ending ‘quangos’ are established and funded swiftly.

  6. Liz
    Posted July 22, 2009 at 2:21 pm | Permalink

    It has been obvious for some years that this Government deep down does not really believe in Democracy and this has become more apparent under Gordon Brown who would probably secretly like to rule alone, by decree!
    I have never understood why the Conservative have made so little fuss about the slow destruction of Democracy in England and have no concrete proposals to reverse this slide into what eventually will become a tyranny – evem if it is a benevolent one. The 82 day break for Parliament is beginning to concentrate the Public’s minds about what is going on.

  7. Lola
    Posted July 22, 2009 at 2:21 pm | Permalink

    Fine, pay compo to Equitable Life because of regulatory failures (more below). But make sure that it is taxpayers money, or better yet paid from the personal funds of those regulators that failed.

    But, if the FSA are forced to pay this they will simply up my FSA fees – aka a Trading Tax – so no regulator or government or state official will suffer any consequences at all. I’ve already personally paid out money for this ferrago.

    I am extremely annoyed at the payment of compo to equitable Life. This is a fundamental problem of understanding and responsibility. Buying direct from a company, whether its cabbages or sealing wax or a pension requires the buyer to be aware that caveat emptor applies. If the buyer has any doubts about his competence to judge the quality and price of a product, take independent advice. People are more tha happy to make other complex purchases under the rules of caveat emptor, why does this not apply to financial services.

    By introducing consumer protection legislation and regulation (configured as nationalisation lite) all you have done is encourage people to abandon any form of personal responsibility for their decisions and increase, exponentially the moral hazard in the system on the side of the providers.

    In re EL in particular market participants like wot I am had felt that something was up with EL and a Scots IFA had gone so far as to point out their malpracticesa dn was injuncted by EL. We had been giving this info to clients who asked us and using insurers with stronger finances.

    EL whole marketing proposition rested on the nil commission lie. I know it was a lie because at one time they had offered me a job and explained their very generous ‘production bonus’ system to me. It looked just like commission and an effective rep could earn a very handsome living indeed.

    So add that deceit to the other signs, and there was a company that looked iffy.

    So, just explain to me why I should now be expected to pay a levy towards this failure, which will come out of my own pocket? You may realise from this post that I have little sympathy with the majority fo EL savers. Especially since I told a number personally this analysis and they declined my advice. Why should I now compensate them, either as a market participant through an arbitrary regulatory levy or as a taxpayer?

    In regards to ‘regulation’ this will always fail. Your lot set it up as a way to control the potential monopoly power of state industries transferred to the private sector. By the way of things, bureaucracies and lefty politicians have morphed it into a system of nationalisation by regulation. There is not a single industry that does not now have to run by arbitrary bureaucratic rules, that often governs prices and wages, as well as setting out completely prescriptive management requirements such that they may as well run the businesses. Trouble is nationalisation has been tried and it always results in inefficiencies and exploitation. Overall it is a grand conceit, born of an over inflated sense of intellectual superiority and consequential arrogance, combined with epic ignorance as to how the world actually works on the part of the regulators that just do not appreciate that the wisdom of crowds and the marvel of freedom and markets that will solve the millions of complex relationships and financial equations that go on inside a large society far better and more quickly and fairly than the regulators can. They hate it as it makes their bureaucratic systems of rationing redundant at a stroke. Scrap them as Georgie boy has proposed and replace them with simple rules on capital adequacy and reinforce the principles of caveat emptor and professional responsibility and the whole thing will sort itself out.

    I am not happy.

    • alan jutson
      Posted July 22, 2009 at 4:54 pm | Permalink

      LOLA

      Quite understand your fury at the FSA. and Regulations in general which not only affect Financial Services but many other industries as well (who also pay for said regulations, like yourself)

      We have both posted on this subject before.

      But the problem is whilst the Government push the fact that they have made sure that all Companies trading who have FSA approval are safe, then the general public take that on board.

      Clearly as you are in the industry you are privilidged to certain information that the general public do not have, this puts you at an advantage.
      I have been in the construction and engineering industries that puts me at an advantage over you, on perhaps being able to survey a property correctly.

      Many people who took out pensions did so decades ago, I myself started my pension with Equitable life over 30 years ago (before I think you were trading, from your past blogs) no one in the industry at the time, thought Equitable life was anything other than a good performing company.

      Indeed the HNS, Many government departments and even the Members of Parliament had Equitable Life as the preferential company with whom to invest in AVC’s.

      The problems appeared to start around the early 1990’s i think with hindsight.

      The FSA failed for 10 years to pick up anything that was wrong.
      The auditors failed to pick up anything was wrong.
      Indeed it was a policyholders action that flaged up a problem, both the FSA and the Auditors were still unaware.

      The problem is a pension is a long term investment, where you cannot get your own money out should your circumstances change.
      Many policyholders are locked in with Annuities on a fixed income, or so they thought until they were revalued by the company in the light of problems.
      Those with guaranteed annuity rates had them cancelled.
      Market value adjusters were applied to fund values.

      Not a word in any policy document that this could happen.

      After a four year investigation the Ombudsman concluded that the FSA were guilty of systemic maladministration. and the European Parliament also agreed with those findings.

      We have now had four investigations with regard to the Eqitavble life debacle, and whilst the Company was not lilly white, they all implicate the failure of the FSA to regulate properly in a huge way.

      This is a very serious charge this is not just failure, this is MALADMINISTRATION over 10 YEARS.

      It is an absolute scandle that this organisation was then put in charge of BANK REGULATION in 1997, whilst it was still failing the insurance industry.

      I understand your anger, we are all bloody angry, but the fact is this Government has waited so far since the year 2000 and still does not recognise or make any conclusion from the findings and investigations made, in the meantime around 30,000 policy holders have died.

      If you make regulation the big headline for safety and compliance, then you must accept the consequenses, to do anything else is a cop out and immoral.

      Know you will not agree with these thougthts, but hundreds of thousands of policy holders were let down by a Government Department which failed in it duties, end of story.

      Had the FSA been on the ball and spotted problems in year one, we would not be where we are now.

      • Lola
        Posted July 22, 2009 at 8:00 pm | Permalink

        You are ignoring the central point I am making that regulation creates moral hazard and irresponsibility. You had plenty of warning that EL was hopeless so why didn’t you get out?

        And my business sells advice on these matters. My specialised knowledge is for sale. You could have bought that and saved yourself a shed load. I am also qualified as a Civil Engineer. It is not less likely that my – or your advice – on engineering or civil enginering is valid. The fact that you refused to pay for it is not my problem.

        • alan jutson
          Posted July 23, 2009 at 11:00 am | Permalink

          Lola
          Not a question of paying, it was a question of who you belived at the time.

          We took advice from a number of people, some so called independent agents, some so call tied agents.

          To be perfectly honest, most looked, and acted like spivs.

          Was not aware of your existance in the 1980’s.
          Was not aware of Equitables problems until the —- hit the fan, indeed neither were their Auditors or the FSA, and these are supposed to be proffessional people/organisations who are paid Millions to be effective and who studied the accounts and the way the Company worked for a 10 year period.

          One has to ask, If they were such a bad company why did you bother to have an interview for a job with them.

        • Lola
          Posted July 23, 2009 at 6:51 pm | Permalink

          Job interview. They approached me and I was curious. I was never anywhere near taking it tho’! Call it market research. It also completely confirmed my theory that they were a direct sales outfit driven as much by ‘commisssion hungry salesmen’ as anyone else.

      • Lola
        Posted July 22, 2009 at 8:33 pm | Permalink

        Just to extend my reply – mrs Lola interupted me – I completely understand how you feel, but your analysis is flawed. The FSA/Government did not in any sense maladminister the regulatory system. The philosophy behind the system is flawed. Regulation, as in a guarantee by government is just not ever going to be any good, because it cannot ever work. The only way it can work is if the whole of the country is nationalised and is run on bureaucratic lines. Of course it is well understood now, by the example of the USSR/GDR etc that such a command economy does not work either. Simply trying to ‘regulate’ and ‘guarantee’ as New Labour has done absolutely guarantees that the whole thing will go wrong. No error is involved at all, it just doesn’t and will not work.

        And you were told, or at least all the information was available to you, to get out of your EL investments, but you failed to do it. Why should I pay for you idleness or ignorance? I and many others were selling this advice for some time. In any event staying with one investment manager for 30 years is an absolutely bonkers risk. This is not specialised knowledge at all, but simple good investment discipline.

        The fact is that most EL savers I met were very smug indeed and would never ever consider that their decisions could be flawed, just because EL said (untruthfully) that it did not pay commissions. We are all on ‘commission’ in one way or another so that’s just stupid.

        In re specialised knowledge I could buy your servcices to survey a house. Why shouldn’t you buy my services to judge EL? There is absolutely no difference between those two positions.

        So, in summary, there was no maladministration. And two, you and the rest of you could have easily found out about EL had you bothered. Also three if you make an investment on your own account do some work to make sure that you know what you are doing.

        This is why we need to scrap whole swathes of consumer protection and all the rest of it. People no longer take any responsibility for their own mistakes. Plus it creates epic moral hazard in organisations like EL.

        I still see no reason at all to pay you a penny.

        • alan jutson
          Posted July 23, 2009 at 11:22 am | Permalink

          Agree with you in part about the Regulation system being in some cases flawed, but you do have to have some safeguards in life, otherwise we end up with a mafia culture where innocent people are just ripped off and taken advantage of.

          What we need is good, simple Regulation.

          Yes I am full aware of commission earnings, as I spent a good part of my life running a large salesforce on a commission only basis. Unfortunately some salesmen can get carried away in their quest to get that sale, and as such are sometimes economic with the truth.

          Whilst I accept your premise that you should not have all of your eggs in one basket, most people have a pension provider for many years, and have (if they can afford it) other means of savings outside of a pension to help mitigate the risks.

          A huge amount of publicity was given by successive Governments of all colours on the benefits of people having a personal pension, I think with hindsight pensions now are a poor form of saving for your old age, as they are so inflexible.

          With regard to taking money out of a pension. The law says you cannot, once you have purchased an annuity, it is fixed until you die, and 30,000 policy holderrs have so far waiting.

          Given that Equitable still has many thousands of members, further delay will result in more passing away with no recourse to compensation.

          You say there has been no maladministration, but the Ombudsman who spent 4 years investigating the situation says different, and with the greatest of respect, I think they have a little more detailed information to hand than you do.

          The recomendation made by the Ombudsman to the Government. Policy holders should be compensated without delay.

          Congratulations on being a Qualified Engineer, there are fewer of us about now than there were many years ago.

        • Lola
          Posted July 23, 2009 at 6:56 pm | Permalink

          I don’t think the Ombudsman knows more than me. That’s is not to say that they have had access to a whole load more stuff than I have. What I am arguing about is the whole ‘it’s someone else’s fault and I want my compo’ culture that has grown up as a result of reg-you-lay-shun. It’s analagous to state funded unemployment benefi. All it creates is unemployment. In the same way ‘consumer protection’ creates consumers who need protecting. It’s not the knowledge it’s the philosophy.

          In re long term savings, I agree that it is impossible to know who is going to do it for you, so diversify. And steer well clear of WP funds. From 1980’s onwards all this was clear. And if you wanted profesional non-spiv help you could have asked an actuary.

      • Jon
        Posted July 23, 2009 at 7:54 pm | Permalink

        For your information : ) The directors of all teh other leading Life Offices of the day whistle blew on Equitable life for 6 consecutive years to the FSA. They knew. They also got wind of the investigation in 2007 (I think it was) that being the 8th or 9th report, was going to go to the FSA’s office. (Further allegation about FSA ed)

  8. Posted July 22, 2009 at 3:41 pm | Permalink

    Amongst the many and various disasters of Equitable Life is the tawdry business that the then Public Trust Office, acting under the Court of Protection, was sanctioning investments in this company when the authorities were already aware that it was insolvent. So who exactly was responsible for this?

    • Lola
      Posted July 22, 2009 at 4:04 pm | Permalink

      Faith in ‘regulation’. That is the removal of personal responsibility for ones actions.

  9. Posted July 22, 2009 at 7:29 pm | Permalink

    Today the systems thinker has been subjected to a personal attack by David Walker of the Audit Commission. Why? John seddon had the temerity to suggest that to preserve public frontline services, and to reduce the massive waste in specification, inspection against targets, tick-box and central prescription at the audit commission could save hundreds of millions. The response was personal, the support for Seddon from academics, public and private sector managers nothing short of amazing.

    Could this be a new way forwards?

    Read the initial letter from Seddon:

    http://www.lgcplus.com/5003845.article

    Read the attack from the AC:

    http://www.lgcplus.com/5004206.article

    And read the comments!:

    http://www.lgcplus.com/finance-and-partnership/walker-v-seddon-the-debate-goes-on/5004313.article

  10. Jon
    Posted July 23, 2009 at 7:44 pm | Permalink

    Thank you for tabeling the questions Mr Redwood and no I don’t have any money invested there. I am just disgusted at this debacle, 9 reports is it? It’s been criminal throughout and they hide behind a public that is perhaps ignorant of how much the regulator failed here, in fact deliberately negligent. This is one of those areas, like sufficient equipment for our troops, that is beyond words like disgrace and criminal because their deliberate inaction repeated again and again.

    Again, thanks for not letting it dissapear like the gov wants it to.

  11. Jon
    Posted July 23, 2009 at 7:48 pm | Permalink

    And I might just add here this. The Tory’s, rightly at the time came in for huge criticism of the pensions transfers misselling at the end of the 80s. Those people were all compensated, as it turns out since are generally much better off than had the not transferred as a result as well. Also, in comparison to this gov, a small drop in the ocean. This gov just will not do the right thing no matter what judge, jury, report writer or ombudsman says.

  12. Paul
    Posted July 23, 2009 at 8:49 pm | Permalink

    I find it hard to believe that if you were in Government you would be willing to stump up £5 billion, John. Stop jumping on the bandwagon and pretending the Tories would have sorted it out. The Ombudsman’s report recognised it was successive governments who contributed to this mess remember

    Reply: I inherited the mess of Barlow Clowes as Minister and did compensate victims.

    • Jon
      Posted July 25, 2009 at 6:44 pm | Permalink

      I don’t think its 5 billion but the pensions misselling scandal cost 5 to 6 billion in compensation. I don’t recall any previous government that took an issue to the 9th report on the matter, against all court in the land and ombudsman and still refuses. Thats not something I recall happening before.

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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