Policyholders who lost money after investing in Equitable Life are to receive pro-rata payouts equivalent to about one-fifth of their losses under a government compensation package.
Last year, the government announced that £775m would be made available for distribution between Equitable Life policyholders – excluding with-profits annuitants and their estates – who had suffered ‘relative losses’ as a result of “accepted government maladministration”.
On Wednesday, the government said that it had accepted the recommendations of the Independent Commission on Equitable Life Payments over how these payouts should be prioritised over the next three years.
A key recommendation will see about 1m policyholders receive a pro-rata allocation equivalent to 22.4 per cent of their relative losses.
“The commission had particular sympathy for those 266,000 policyholders who found that the amounts received or receivable on their policies were below the amounts they actually invested,” it said.
“However, on balance it felt that paying out such losses in full or in part would have an unfair impact on payments to other policyholders or would present practical difficulties. No group of policyholders has been identified which in the commission’s view merits favourable treatment at the expense of other policyholders.”
The commission also recommended that the oldest policyholders, and the estates of deceased policyholders, should be paid first.
“This prevents delays to beneficiaries receiving payments when they might be at their most vulnerable and reflects the difficulties that could arise from prolonging payments owed to the estates of deceased policyholders,” it said.
The pro-rata payout would be considered on a “single policyholder view” based on net losses across a portfolio, if more than one policy was held, with payouts excluded for pro-rata payouts below £10.
The commission expects that its recommendations will result in:
● Approximately 945,000 policyholders receiving payments equivalent to 22.4 per cent of their “relative losses”;
● The remaining 100,000 policyholders with “relative losses” receiving no payment because their pro-rata allocation amounts to less than £10;
● Almost 70 per cent of 11,250 known eligible estates receiving payment in the first year;
● 95 per cent of all eligible policyholders over the age of 75 receiving payment in the first year (the remaining 5 per cent hold policies in group schemes, which cannot always be prioritised for practical reasons);
● All eligible policyholders over the age of 60 with individual (as opposed to group scheme) policies receiving their payment in the first year.
“I am very pleased that the government has accepted all our recommended principles,” said Brian Pomeroy, chairman of the commission.
“The commission has listened carefully to the views of interested parties and we believe that our conclusions will deliver an outcome that is simple, transparent, and fair for policyholders.”
Equitable Life, Britain’s oldest mutual assurer, nearly collapsed after the House of Lords ruled in 2000 that it should be forced to honour tens of thousands of unprofitable policies sold in the 1980s, a decision that left it with a £1.5bn liability. Equitable closed to new business and sold its assets to Halifax.
The government had already announced that about 37,000 “trapped” with-profit annuitants who invested after September 1992 will receive regular payments for their lifetime at an estimated cost to the taxpayer of £620m.