Equitable Life Frequently Asked Questions (FAQ)

26 January 2011

When will I receive my payment?

It is the Government’s ambition to begin making payments in the middle of 2011. At this stage we are not in a position to say when individual policyholders will receive payments.

The design of the payment scheme is currently being finalised following receipt of advice from the Independent Commission on Equitable Life Payments. The scheme design will then be reviewed by Parliament in the spring. At that stage we should be able to provide policyholders with further information about the payment scheme.

When will I hear more?

Once the scheme design has been reviewed by Parliament, we should be able to provide policyholders with further information about the payment scheme.

What do I need to do next?

You do not need to do anything at this stage. The Government is in the process of working the recommendations from the Independent Commission on Equitable Life Payments into the design of the payment scheme. The scheme design will then be scrutinised by Parliament in the spring.

Am I eligible for payment?

Policyholders who purchased a conventional with-profits policy or with-profits annuity after 1 September 1992 and before 31 December 2000 are eligible for the Payments Scheme provided they suffered a Relative Loss.

For accumulating with-profits policies you may be eligible if you suffered a Relative Loss on your with-profits policy and either made a premium payment between 31 December 1992 and 31 December 2000 or had a policy that started between 1 September 1992 and 31 December 2000.

If you have left Equitable Life, or plan to before any payments are made, your eligibility will not be affected.

Why are those who purchased a With Profit Annuity policy before September 1992 not eligible?

Policyholders who hold a With Profits Annuity policy that commenced before 1 September 1992 took out their policy before any maladministration could have affected their investment decision. With Profits Annuitants (WPAs) who purchased their policies prior to 1 September 1992 did not rely upon regulatory returns which were inaccurate as a result of maladministration in making their decision to invest in Equitable Life. They would still have invested even if maladministration had not occurred and, once invested, were locked in. Meeting the Ombudsman’s recommended aim of the scheme therefore cannot involve payments based on the assumption that they would never have invested in Equitable Life or would have moved their funds elsewhere. Accordingly, they have not suffered a loss for which any payments under this payment scheme would be appropriate and therefore are not eligible for the scheme.

The reduction these policyholders have seen in their annuity payments occurred because of poor investment market performance, and early annuity payments that were artificially high due to the structure of the product and over-bonusing.

I am not a With Profits Annuitant but I invested in my policy before end of 1992. Will I be paid?

These policyholders will receive a lump sum payment in relation to any premiums they paid after the end of 1992.

I’m a With Profits Annuitant who invested after 1 September 1992, what does this mean for me?

The Government will cover the full cost of losses for these policyholders. They will receive their entitlement through ongoing regular payments.

I have (or had) another type of With Profits policy – what does this mean for me?

The Independent Commission on Equitable Life Payments has recommended that the funds available to the payment scheme should be allocated on a pro rata basis – this means payments will be in proportion to the size of relative losses. This equates to 22.4% of each policyholder’s relative loss. The scheme will also apply a modest de minimis below which payments will be too small to be made. Policyholders who have a policy other than a With Profits Annuity will receive their payment in a single lump sum. Policyholders will be provided with further information about the payment scheme in due course.

Can you tell me exactly how much I will get?

Unfortunately, at this stage we are not in a position to inform individual policyholders how much they will be paid.

When will the scheme start paying out? The Government’s ambition is to begin making payments in the middle of 2011. Why aren’t you paying ‘With Profits Annuity’ policyholder losses as a lump sum?

Making regular payments mirrors the income policyholders with a ‘With Profits Annuity’ policy would have received from their Equitable Life policy. It also enables the Government to continue funding payments beyond the current Spending Review periods.

Do you have the correct contact details for me?

You do not have to do anything at this stage in relation to your contact details. We are currently securely processing contact data for the scheme. This will go through a robust validation procedure in the run up to the opening of the scheme.

Will this affect any benefits I may be eligible for?

A lump sum payment made to a non-With Profit Annuitant will be classed as capital for the purposes of means-tested benefits. This is fair because whilst treating funds that should have been received over many years as one year’s income could potentially distort the assessment of an individual’s eligibility for benefits, treating it as capital would not. The payment would become part of a policyholder’s asset which in the ordinary course of things would be taken into account.

If this lump sum is particularly large, policyholders in receipt of means-tested benefits could find their eligibility for benefits is affected.

For With-Profits Annuitants who receive an ongoing regular payment to replace the income stream lost, payments will be treated as income for purposes of means-tested benefits. This is fair because it reflects the structure of the policy they bought, which gives them a regular income stream.

Why is the total amount to be paid out £1.5bn?

The relative loss suffered by policyholders is the difference between what Equitable Life policyholders who invested from the end of 1992 onwards received from their policies, and what they would have received if they had invested elsewhere. It takes into account all the Parliamentary Ombudsman’s findings of maladministration – which the Government accepts in their entirety. This provides a figure of £4.1 billion.

The Parliamentary Ombudsman stated that “It is appropriate to consider the potential impact on the public purse of any payment of compensation.” In light of the pressures on the public purse, the Government has decided to make £1.5 billion available for the payments scheme.

The Government decided that a fair balance between the interests of policyholders and taxpayers would be achieved by:

covering the full cost of losses to policyholders with With Profits Annuity policies – approximately £615 million. This will be paid through ongoing regular payments; and
allocating £1 billion as part of the Spending Review, to cover the first three years’ payments to those With Profits Annuity policyholders and lump sum payments to all other policyholders.

You announced that the total relative loss figure was £4.3bn. Why is it now £4.1bn?

The change in the relative loss figure has been driven by continued improvements made to the calculations, refinements of individual policies’ relative loss calculations, addressing data issues and on-going review of individuals’ relative losses.

Towers Watson are providing actuarial advice to the Government on Equitable Life. Towers Watson will continue to refine their calculations over the coming months, during which time we expect there are likely to be further changes to the loss calculation. In particular, approaches for unusual policy circumstances and complex policy features need to be finalised which may change the relative loss figure. This will impact the calculation of relative loss. Such fluctuations will not affect the funding available for the scheme. Figures will be finalised in time for individual payments to be made when the scheme commences.

Why have these issues not yet been resolved?

The relative loss calculation is extremely complex, and it’s important to make sure that individual relative losses are calculated as accurately as possible and that the right people are paid the right amount. This takes time, but it is essential that we continue to work on the design of the scheme in tandem to finalising this data, in order to make payments as quickly as possible to those who have waited over a decade for redress.

Why isn’t the Government paying out more?

The Government is paying out the amount it believes is fair to taxpayers as well as policyholders. Given the significant pressures on public finances, the Government cannot afford to pay out the full value of relative loss – £4.1 billion, and it would not be fair to taxpayers to do so.

Why are you covering the cost of ‘With Profits Annuity’ schemes in full but not for other policyholders?

Because of the nature of their policies, With Profit Annuitants (WPAs) have been one of the hardest hit groups.

Policyholders who held WPAs are trapped in policies that are providing a declining income in their retirement. In light of these factors, the Government decided that a fair balance between the interests of policyholders and taxpayers would be achieved by covering the full cost of losses to policyholders with WPA policies – approximately £615 million. This will be paid through regular ongoing payments. £1 billion was allocated as part of the Spending Review, to cover the first three years payments to WPA policyholders and lump sum payments to all other policyholders.

Why don’t you spread the cost of all payments, not just ‘With Profits Annuity’ policies? Then you could pay out more overall?

The Government has decided that, in light of affordability and the need to balance the interests of taxpayers and policyholders, it is only able to spread the cost of the With Profits Annuitants (WPAs) losses.

Throughout this process, policyholder groups and Members of Parliament have made it clear that due to the nature of their policies, WPAs are one of the hardest hit groups. A regular ongoing payment mirrors the income stream that a WPA would actually have received from their Equitable Life policy. This is not true of other types of policy. It would also not be affordable to take this approach for all types of policy.

What is the Independent Commission on Equitable Life Payments?

In May 2010, the Financial Secretary to the Treasury announced that an independent commission would be set up to advise the Government on the Equitable Life payments scheme.

In July 2010 the Financial Secretary announced the appointment of three Commissioners: Brian Pomeroy, John Howard and John Tattersall.

The role of the Commission was to:

recommend how best to fairly allocate funds provided for the Equitable Life Payments Scheme in the first three years of the Spending Review to those persons found to have suffered relative losses as a result of accepted Government maladministration, excepting with-profits annuitants and their estates; and
advise on any groups/classes of persons that should be paid as a priority with regard to the timing of payments, again excepting with-profits annuitants and their estates.

More information can be found at http://equitablelifepayments.independent.gov.uk.

What did the Commission recommend?

The Commission recommended the following for allocating and prioritising the £775 million funds:

a pro rata allocation of the available money to be paid, in proportion to the size of relative losses suffered. This equates to 22.4 per cent of each policyholder’s relative losses;
where possible, a single policyholder view be taken where policyholders have multiple policies (offsetting relative gains against relative losses);
payments to the oldest policyholders should be prioritised, as they are least able to wait up to three years, particularly because younger policyholders are less likely to be approaching retirement and, since they are of a working age, more likely to be in a position to mitigate the effects of a delay;
similarly, payments to the estates of deceased policyholders and, as far as possible, the estates of those who die before receiving a payment in the next three years, should also be prioritised. 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; and
a de minimis amount, in the region of £10, beneath which payments should not be made. This reflects that administering very small payments below this sum would be disproportionate to the administrative costs of making them while being, in the Commission’s view, of negligible significance to recipients.

Has the Government accepted the Commission’s recommendations?

The Government accepts the principles recommended by the Commission. The Government will now build those recommendations into a detailed scheme design document and will present this to Parliament for review in the spring.