Investors who lost millions of pounds as a result of the Equitable Life crisis were this week given public backing by MEPs in their crusade for compensation.
Action groups and campaigners have been fighting the government to obtain redress for the money they lost when the life assurer almost collapsed six years ago.
This week 89 per cent of the European Parliament voted in support of a report damning the UK government’s handling of the situation and urging it to take responsibility for the remuneration.
Britain’s regulatory system took a light touch approach and did not check the growth of the Equitable problems, it says.
Diana Wallis, a Liberal Democrat and author of the report, said regulators in Germany and Ireland did not perform correctly after Equitable Life was allowed to conduct business across European Union borders, and did not enforce the correct levels of consumer protection.
The vote does not mean the UK government will be forced to act, but does keep a spotlight trained on the situation and has been met with optimism by members of Equitable victim action groups.
“It was a gobsmacking success,” says Paul Braithwaite of the Equitable members’ action group.
“The vote is an overwhelming endorsement from the 27 member states for the report and a castigation of the British government’s failure to regulate and act upon the scandal in which so many people lost an important part of their pension savings.”
He adds: “The ball is now in the government’s court to respond to the European Parliament’s vote.”
A Treasury spokesperson said that the government was considering the European report but would not comment on the findings until the UK parliamentary ombudsman’s investigation into the regulation of Equitable Life had been revealed.
The European report also recommends that the UK government accepts the recommendations of the UK ombudsman’s long-awaited report.
Just last month the Conservative party accused Gordon Brown of deliberately swamping the ombudsman with new information in order to delay the publication of this report until Brown leaves the Treasury.
A draft copy of the report was sent the Treasury, the Government Actuary’s Department and the FSA in January and a large amount of information was subsequently sent back in response.
Ann Abraham, the parliamentary ombudsman, has told MPs that she cannot provide a definite publication date for her report, which she once hoped to complete in 2005.
Many Equitable members hope Abraham will force the government to pay compensation to members.
The life assurer’s problems arose as a result of the high level of guaranteed annuity rates it offered to clients when it first began to deal in pensions in the 1950s, 1960s and 1970s.
Customers were able to buy set annuity rates, albeit at a lower level than market annuity rates, linked to their with-profits pension investments.
Decades of increased longevity and falling interest rates then brought market annuity rates down from double digits to mid-single digits, making Equitable’s rates much more valuable, and expensive, by comparison.
Equitable subsequently struggled to meet its guaranteed annuity payments and provide other investors with good returns but crucially continued to take on new customers when the problems were already apparent.
Instead, the company tried to offer clients reduced guaranteed annuities until the House of Lords stepped in and prevented them from doing so.
It was only in December 2000 that the company finally closed its doors to new business and put itself up for sale. At this point policyholders saw the value of their retirement funds slashed.
In 2001 the company came up with a plan to increase returns for policyholders if they rescinded their rights to pursue compensation. Customers received an increase in their pension pots but gave away their right to a guaranteed annuity. For many this level of compensation was enough, and the financial ombudsman rejected further claims on the basis that these policyholders had signed away their right to complain.
Not all were left satisfied. The group that has the best chance of compensation is the so-called “late joiners”, who invested their money with Equitable when the company knew it was in financial difficulty. These individuals took out policies between 1997 and 2000, when there is the most evidence that the government fell down on its regulatory duties.
Action group members acknowledge that compensation is by no means a safe bet even if the ombudsman does recommend it, but by keeping the pressure up in Brussels and at home, Equitable action groups have at the very least managed to make the government’s life uncomfortable.