During the 1990s Equitable Life sold tens of thousands of new policies when it knew full well that its finances were in appalling shape. Along with other Equitable policyholders, many with profits-annuitants believe they were tricked into joining an unstable fund that was, in effect, insolvent.
With profits-annuities were offered from 1988 onwards but the Penrose report has revealed that for nearly all of the subsequent period the society was paying out over-generous bonuses that were not backed by assets.
It is widely believed that the marketing hype of large bonus payments was used to attract more business in order to keep filling in a huge hole in the society?s finances.
Victims believe that they have been conned out of a major part of their pension to pay for the problems, which existed before they were sold their policies. The investments by the with-profits annuitants came from money saved prudently for their retirement during the whole of their working lives.
As with-profits annuitants we have no certainty of income for the future whatsoever. The society has already stated that our annuities will decrease by approximately 50 per cent over the next 10 years. But it understates the risk of further massive reductions. It is entirely possible that the society could raid our annuities again to stay afloat.
There is a suspicion that the with-profits annuitants are being ?held hostage? by the society not for any legal or administrative reason but because the society needs our capital to meet its other obligations. Our legal team has advised that we have a strong basis for claiming damage for losses.
In the light of what we now know, we believe that the with-profits annuity was a dangerous product - fundamentally unsuitable for people who wanted to receive a stable income throughout their retirement.
We thought we were placing our pensions with a company which would invest our money prudently in a with-profits fund which was supported by smoothing reserves built up in the good years. In fact the Penrose report confirms that in reality no smoothing fund existed.
It would appear that the Treasury has no intention of paying any compensation, and the Equitable board seems remarkably reluctant to assist its own members to obtain that compensation. While the financial establishment - everyone from the Treasury to the FSA, the FoS and the Equitable board itself continues to commission endless enquiries and indulge in what looks suspiciously like delaying tactics, we are literally dying while we wait for justice. The average age of our members is just over 70 and on an actuarial basis we will nearly all be dead in 10 years.
When we announced our plans for legal action, the society trotted out the tired mantra that we are only suing ourselves and the money has to come out of the with-profits fund. But we have lost all trust in the society?s board and the government. It is our belief that the one thing that will crack the edifice is legal action - the one thing that the government and its protectors fear the most. A successful court case would precipitate a crisis for Equitable and force the government to intervene. If we do nothing there will be no compensation - full stop.
In reality, it is our belief that the Equitable will do anything to avoid having the truth aired in court and that it will seek to settle out of court. Lord Penrose left a big clue when he said in his report that: ?These are matters to be decided by the courts?. If the Equitable itself has no intention of testing matters in the courts then we will have to do it for them. Elta is raising funds to pay for legal advice on a basis for initiating legal proceedings against the society.
If we have enough members prepared to support us and the advice is favourable we intend to issue a writ before July 14, 2004. The deadline is to avoid the risk of being time barred. We are asking people for ?100 now and a further ?900 payable in July if we agree to pursue legal action. Although we have been offered legal help on a ?no win no fee? basis, we still need a substantial fund to pay for legal disbursements and insurance.
Nearly 2,000 Equitable annuitants have already contacted Elta either directly or through their IFAs and we are working flat out to distribute membership forms. We expect to have signed up at least 500 members before the end of May.
Peter Scawen is chairman of Elta (Equitable Life Trapped Annuitants) www.elta.org.uk