17 July 2008
Investors caught up in the Equitable Life debacle should not count on an early compensation payout following today's adjudication by Parliamentary Ombudsman Ann Abraham. She said the government should apologise for a "decade of regulatory failure" and identified 10 instances of maladministration by its departments.
Even if the government does decide to pay compensation, it will take its time - there will be no decision even in principle before the autumn - and any payments will be fiendishly complicated to calculate.
The life insurance company nearly collapsed in 2000 after being ordered by the House of Lords to fulfil financial promises which it could not afford. More than a million policyholders were left with reduced retirement savings.
Although some have since received some compensation from Equitable some have done better than others. Determining which investors have experienced losses that are directly attributable to regulatory failure and calculating a suitable level of redress will take a very long time. By comparison, the final salary Financial Assistance Scheme has already taken years to resolve, and is only now starting to make meaningful payments.
There is still the possibility that a transfer out of the with-profits fund now would exclude an investor from any future compensation payment. Equally, there is the very real risk that investors could suffer years of further poor investment performance to no real benefit, either because they do not receive compensation, or because they find that they could have received the compensation even if they had transferred out earlier (i.e. now).
Equitable investors need to take a realistic view of the possible timing and amount of any future compensation payment for their own personal circumstances. This needs to be balanced against the costs and benefits of reinvesting their remaining funds elsewhere in order to achieve the best possible growth on their investments.
Tom McPhail
Head of Pensions Research
