Do you remember that annoying TV advert for Equitable Life in the 1990s? Equitable Life nearly went bust in 2000 and left nearly a million people with reduced pensions.
The Parliamentary Ombudsman has just released a very damning
report into the “maladministration” of the various government regulators (Department of Trade and Industry, the Government Actuary's Department, and the Financial Services Authority) that allowed this to happen. She is calling for the government to issue compensation to policy holders. The government says it will think about it.
I’ll declare an interest. During the 1990s Equitable Life was the approved (and only) Additional Voluntary Contribution (AVC) provider for the Local Government Pension Scheme. I decided to try and top up my main pension with a small policy. I believe Equitable Life was also the AVC provider for the NHS pension scheme and many others. My wife also took out a private pension with Equitable Life. For some reason I keep forgetting to mention this stunning bit of financial foresight in my election statements for UNISON London Regional Finance convenor.
Luckily for us, unlike many long term investors we did not lose much money. I am very pleased that there might be an end insight for those that
did (picture from Equitable Life Members Support Group).
While I would agree that the regulators should have stepped in and sorted out the rogue management at the time, there was also a wider failure in governance which has lessons to the current debate on
capital stewardship and
New Capitalism.
Equitable was the world’s oldest mutual life assurance company. There were no shareholders only “with-profit” policy holders who “owned” the company. Before the collapse I was surprised that unlike other insurance companies and building societies you could only vote at the company AGM in person. There was no postal voting on motions or elections of the board. The AVC funds of the LGPS and the NHS must have been very substantial. Yet there were no in-house governance arrangements in place for even monitoring what was being done with these investments. The money was simply handed over to the company with no scrutiny in place. I am certain that most LGPS schemes did not go down (probably none) and vote at the AGM until it all blew up.
The Penrose Report 8 March 2004 concluded that Equitable had little effective scrutiny and was "
a self-perpetuating oligarchy amenable to policyholder pressure only at its discretion".
Yes the regulators let policyholders down and since then I have no doubt that they have learnt lessons (apart from Northern Rock I suppose) but also the regulators continue to fail to ensure that policy holders in other banks and insurance companies are able to exercise their responsibilities as owners. Some companies spend huge amounts of money just on finding ways to get around regulations. Regulation is crucial but also proper representation in these companies of those who are actually risking their life savings and futures would be even better. All collective investments should have elected independent policy holder representatives or “trustees” on the investment boards.
Now, that would be Equitable Life Henry.
