Its not an Equitable life Henry

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.

Alistair and Northern Rock

While I think that the chancellor Alistair Darling is still potentially in serious trouble over Northern Rock (ignoring the lost computer discs with their 25 million names for the moment) I think that unless the housing market goes completely belly up (and if so, God help all of us) he should be okay. I have only met him once, about 20 years ago in Edinburgh, when he was my local MP and a completely revolting manager was trying to sack me (story of my life - I was a T&G steward at the time).

Surprise, surprise for a successful Scottish Labour MP, he was in my experience, as tough as old boots, while being committed and focused. A cross between the Morningside advocate that he is and a Leith docker. No wonder he has done so well.

Tom P has posted some really sensible stuff about Northern Rock on this blog in response to a rather silly Tory city boy who has been making daft comments on various stuff in recent weeks (which he is perfectly entitled to do so).

So before we fall into the trap that the media and the Tories want us all to fall into over the Northern Rock debacle lets remember for a minute who is really to “blame” (if this is the right word to use in a capitalist society)

Tom P (edited by me) comment

“Personally and somewhat controversially I think the run on Northern Rock was the fault of.... wait for it.... the directors. They developed a strategy that was always going to fail in the credit markets seized up. I don't see what anyone - the Govt, the BoE - could have done to end this one any differently.

In all the commentary I have read about Northern Rock no-one seems to have come up with a good alternative strategy. There are suggestions about timing - the BoE could have stepped in earlier, Darling could have offered the guarantee earlier - but notably both these would have involved MORE state intervention....

Equally should Darling simply have not stepped in - and let thousands of savers lose their money?......

It's clearly not just Northern Rock. Major Wall Street players like Citi and Merrills have got billions in bad debt on their books now. I read somewhere the other day that for financial institutions as a whole it might hit 1 trillion USD.

And you reckon the Govt is incompetent.

Of course in the case of Citi and Merrill’s it's the usual case of rewards for failure. Despite the spectacular losses, the CEOs of both are going with huge pay-offs. Chuck Prince gets only about $95m, but Stan O’Neal should get about $150m.

It wouldn’t be so bad but it was only a few years ago that the geniuses in the City last showed their competence - p***ing pension funds' money away on TMT garbage, or cheering on Marconi as it destroyed itself”.

Well said Tom. come on Alistair - sort out these city rejects and make sure they pay their fair wack in taxes for their failure.