Consumer confidence in pensions will not be helped by the UK government’s procrastination over paying out compensation to policyholders who lost out in Equitable Life scandal. The whole matter has just come into focus with European Parliamentary support to its committee’s position that the government should compensate the victims. The committee got a massive endorsement at Strasbourg, with 602 supporting votes, to 13 against and with 64 abstentions.
However, the UK is holding out for further delay. An official at the UK Permanent Representation in Brussels (UKRep) said: “We shall not be commenting until the British Parliamentary Ombudsman’s report is published.” The last deadline was to have been this summer.
Then, in May this year, Ann Abraham, Parliamentary and Health Service Ombudsman, wrote to policy holders that a draft version sent in January to the government’s Actuary’s Department and the Financial Services Authority, had generated a 500-page response and that consideration of its points would take until at least October.
It was in 1987 that the case first came to light that policy values exceeded assets, by over £4bn (€5.6bn). It was then that the Equitable Life Assurance Society (ELAS) non-guaranteed With-Profits policy in that year “constituted a conspiracy to defraud”, as it “knowingly [made] false representation”, to use the words of a witness at the European Parliament’s Committee of Inquiry into the Collapse of Equitable.
In 1994, the pension firm was obliged to cease full pension payments as liabilities rose, and today continues to run itself as a remnant solely for the benefit of existing policy holders. The vast majority of its investments of £9.5bn are in fixed interest securities, government treasuries and corporate bonds.
A spokesperson for Equitable, who expressed frustration at the delay at the ombudsman’s report, pointed out that the firm had not been open to new business since 2000. He believed that pressure from the ombudsman would be the best hope for recompense by the government.
Statements made by the European Parliament have hardly helped investor confidence in the life insurance industry. However, as a whole, MEPs do not foresee a drop in consumer confidence. Of course they are particularly keen to stress the need for confidence, especially given demographic trends in Europe. But their viewpoint is that many steps to shore up the shaky-looking interests of the EU’s ‘single market’ for financial securities and the likes have already been taken.
Furthermore, the ELAS committee has made a raft of further proposals to improve EU financial services legislation. These include defining the rights of consumers who buy financial services products in EU countries other than their own. They cover the role of the European Parliament and the Commission in monitoring the implementation of EU legislation in member states.
While the problems at Equitable Life arose primarily due to mismanagement, obligation is claimed on the government to pay compensation to the more than one million policyholders because of its lax supervision of EU rules.
The European Parliament’s committee argues that, given the UK government’s “failure to comply” with EU insurance law (notably the UK regulators’ failure to ensure that Equitable Life had sufficient reserves to pay its policyholders), the government should assume responsibility. It should “devise and implement an appropriate scheme with a view to compensating Equitable Life policyholders within the UK, Ireland, Germany and elsewhere”.
It is clear that the European Parliament, which could have opted to forget the past has decided to embarrass the government into paying compensation, at least to the ELAS non-UK victims.
Ultimately, it also has another alternative, that is, to instruct the Commission to open international court proceedings to seek damages against any relevant institutions or individuals within the UK authorities.
If sued, the stakes for the government appear to be high. Potential liability could be as high as £5bn. However, the chances of the EU going to court against one of its own members states is thought to be highly unlikely - against the spirit of club rules, as it were.
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