I pointed out at the time just how unusual it was to see such specific pledges in election manifestos but both the Conservatives and the Liberal Democrats followed through their longstanding criticisms in Parliament of the Labour government on this issues with clear cut promises.
"We will implement the Ombudsman's recommendations to make fair and transparent payments to Equitable Life policyholders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure" - p12, Conservative manifetso.
"We will make pensions and benefits fair and reward savers by...meeting the government's obligations towards Equitable Life policyholders who have suffered loss. We will set up a swift, simple, transparent and fair payment scheme" - p18, Liberal Democrat manifesto.
We can certainly say there is nothing "swift" in what has been proposed. Mr Hoban made it clear that there are several stages to go before any money finds its way into the hands of policyholders who will be especially disappointed to hear that yet another commission is going to be set-up, albeit with the more encouraging brief of advising on the best way to allocate payments. This is expected to report in January next year with the best estimate of when compensation payments might actually start flowing being the middle of 2011.
I still struggle with the need to keep setting up more and more committees, enquiries and commissions, certainly for this final stage of calculating and distributing payments. We have a very good mechanism in place already for handling compensation claims - the Financial Services Compensation Scheme. The FSCS has already proved itself very capable of acting beyond its original remit with the way it responded to being tasked by the last government to hand out £7.4bn of public money to the 300,000 savers with the collapsed Icelandic banks. Equitable Life requires less money to be distributed to more people and the calculation of losses on different types of pension plan are much more complex than with bank savings plans: this just further reinforces my view that we should make a start on this by using the expertise and systems that are already tried and tested.
The next problem is sorting out just how much the Treasury is prepared to put on the table and this is where the government does seem to be getting into some difficulty. The report from Sir John Chadwick - commissioned by the last government to come up with a limited scheme to compensate those worst affected - was also published yesterday and it has some extraordinary figures ranging up to £4.8bn for the relative loss suffered by policyholders. It is, of course "relative loss" that the Tories focused on in their manifesto with the important qualification "as a consequence of regulatory failure". Some headlines today have suggested that the actual compensation fund could be set as low as £500m. This figure has been arrived at by taking Sir John's lower range of £2.3bn to £3bn for absolute loss together with his suggestion individuals be paid only 20% to 25% of that. The chances are that this approach would have been broadly adopted by the Labour government but it doesn't really match up to the promises that the coalition partners have made.
The two big problems that are really contributing to the further delay are the need to focus on the proportion of the relative loss caused by regulatory failure. A fair chunk of that £4.8m is generated by the fact that comparable life companies have performed very well in the intervening years and policyholders need to be told that they cannot expect to be compensated for a poor choice of fund managers: that is how markets work. What they can be compensated for is the failure of regulators in the early 1990s to pick up on how Equitable Life was over-stretching itself by promising guaranteed returns that were not achievable, at least not without huge detriment to non-guaranteed annuity policyholders. We are still no nearer to putting a percentage on that, although maybe Sir John is trying to help us in the right direction.
The other problem is the Treasury's over-riding desire to cut public expenditure significantly and Mr Hoban acknowledged the importance of this in his speech to Parliament yesterday: "This scheme will be a significant spending commitment for this government and cannot be considered in isolation from the other spending decisions that it will need to make over the coming months and what is affordable in that context".
Where does this leave us? It leaves us waiting for the government to put a sum of money on the table. This is what should have been done some years ago. I actually do not think you can ever really pin down just what proportion of the losses suffered by policyholders are down to regulatory failure and what proportion is down to all those other factors constantly present in the savings, investment and annuities markets, so you might as well put an ex gratia sum on the table and get on with distributing it. Regardless of the figures Sir John Chadwick has come up with I have always thought that anything over £1bn would satisfy most of the political campaigners for compensation, although unlikely to appeal to the more ardent members' action groups. Funny enough if you apply Chadwick's 20% to 25% cap to his estimates of relative loss rather than absolute loss you get to this sort of figure. In the current political and economic climate a settlement of £1.2bn to £1.5bn would be seen as very reasonable and I think that is where we will end up.
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