Equitable Life: When hands off means eyes shut
by Dr. Ros Altmann
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There are rumours that the Government’s handling of financial services may – again – be found wanting. If it is true that next week’s long-awaited Parliamentary Ombudsman report into the Equitable Life collapse will lay blame on regulatory failures and recommend compensation for some of the victims, this will be yet another example of our so-called “light touch” regulatory system being more like “hands off” or “eyes shut”.
It is clear that regulatory oversight of Equitable Life failed to spot its fundamental weaknesses and left investors exposed to unforeseen risks. As with Northern Rock, one has to ask whether the holes in our regulatory regime are due to a system driven too much by the interests of the industries being regulated, rather than the ordinary people who need to be protected? If there then proves to be inadequate protection to ensure quick redress for failures, then our system may not be fit for purpose.
Equitable Life victims have already waited years for some redress and have high hopes resting on the Ombudsman’s investigation. Presumably, if Ann Abraham concludes, after painstakingly examining all the evidence, that their losses were partly caused by Government failings, she will expect the Government to compensate them.
My fear is that the Government could try to resist any calls for Equitable Life compensation in the same way that it continuously refused to properly remedy the occupational pensions scandal over the last 10 years. Then, 150,000 people piled their money into pension plans which they were assured would be able to pay their pensions but when their schemes wound up, they were often left with nothing at all.
The Ombudsman’s February 2006 report Trusting in the Pensions Promise, also produced by Ann Abraham, found the Government guilty of misleading members about the safety of their final salary pensions. She recommended the Government should apologise and fully replace the lost pensions plus compensating for the distress suffered by those whose life savings were so cruelly snatched away from them. Yet, more than two years later, the issue has still not been properly settled.
In fact, even though she found the Government was fundamentally responsible, ministers were able to evade her verdicts and similar ones from the parliamentary select committee, High Court and Court of Appeal. So, even if this report recommends compensation, Equitable Life victims may find they have more fighting ahead. So what happens next? Well, obviously we must wait for the report to be published and examine the findings and recommendations. If the Government is, indeed, found guilty of failing to properly regulate Equitable Life, it may simply decide to retreat to its bunker and deny all wrongdoing, rather than hoisting the white flag, accepting the verdict and paying up.
The victims may then have to launch a judicial review of the Government’s decision in response to the report and also appeal to their MPs and the Parliamentary Public Administration Select Committee for support. This will inevitably mean further heartache for the victims. And, unfortunately, more public money may have to be spent on the issue.
Two shortcomings are central to the recent problems: poor regulation and lack of official understanding about how ordinary people engage with financial services. How many more financial scandals will taxpayers be asked to foot the bill for, before we can be reassured that the Government actually understands what it is doing in this area?
Ministers and regulators must pay more attention to the needs of those buying financial products, instead of those selling them. This means more intelligent understanding of how unsophisticated investors think and more in-depth questioning of financial providers’ business models.
In addition, when things do go wrong, they need to be sorted out quickly, with the Government taking responsibility for what has happened, rather than just denying its responsibility. This is important for us all.
Taxpayers, whether they are investors or not, have an interest in ensuring that government improves its act on financial regulation. But also the public needs reassurance that if things do go wrong, and it is proved to be the Government’s fault, that they will be speedily compensated, rather than being forced to fight for years for justice.
Ros Altmann is a pensions campaigner and former pensions adviser to the Labour government