Financial Secretary to the Treasury, Mark Hoban, today published the Independent Commission on Equitable Life Payments’ report.
Based on the views received from interested parties, actuarial analysis, and its own judgements, the Commission has recommended the following for the allocating of funds amounting to £775 million:
- A pro rata allocation of the available funds, in proportion to the size of relative losses suffered. This equates to 22.4 per cent of non With Profit Annuity policyholders’ relative losses.
- A single policyholder view, wherever practicable, offsetting relative gains against relative losses for those that have more than one policy; and
- A minimum amount, in the region of £10,beneath which payments should not be made. This reflects the Commission’s view that administering very small payments below this sum would be disproportionate to the administrative costs of making them while being of negligible significance to recipients. The administrative cost of making a payment to those with individual policies is likely to be approximately £10 and may be higher for other policyholders.
The Commission recommends that, subject to practical constraints which are laid out in its advice, the following groups be prioritised in the order of payment:
- The oldest policyholders, as they are least able to wait for payment and are also least likely to be in a position to mitigate the effects of a delay; and
- 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. 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.
The Government accepts the principles recommended by the Commission. It will now work out how best those principles can be applied in practice to policyholders, while allowing the Government to begin making payments as soon as possible.
It will publish a scheme design document setting out the practical implications of the recommendations along with other important issues related to the delivery of the scheme, such as the timetable for making payments, and the complaints and challenges procedure. The scheme design document will be made available for Parliamentary scrutiny in the spring.
Policyholders do not need to do anything at this stage. Once the scheme design has been reviewed by Parliament, the Government will be able to provide more details.
Mark Hoban said:
We have always been committed to making fair and transparent payments to Equitable Life policyholders, through an independently designed payment scheme, for their relative loss as a result of regulatory failure.
I am grateful for the work the Commission has done to establish policyholders’ concerns and have used this to recommend the principles of the payment scheme. I welcome their recommendations and we will now use them as the basis for making payments to policyholders.
I would like to thank Brian Pomeroy, John Howard and John Tattersall for all their hard work on this issue, which helps bring us a step closer to resolving it.
Brian Pomeroy, Chair of the Independent Commission on Equitable Life Payments, said:
I am very pleased that the Government has accepted all our recommended principles. The Commission has listened carefully to the views of interested parties and we believe that our conclusions will deliver an outcome that is simple, transparent, and fair for policyholders.
Independent Commission on Equitable Life Payments’ report (Independent Commission on Equitable L Payments’ website, opens in new browser window)
Notes for editors
On 22 July 2010, the Government announced that it would establish the Independent Commission on Equitable Life Payments. This was in line with the Government’s pledge to “implement the Parliamentary and Health Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure”.
Following the Spending Review, the Commission was asked to carry out two tasks. The first was to advise on the fair allocation of funds amongst all policyholders, with the exception of With-Profits Annuitants (WPAs) and their estates. The Government had already announced that there should be no means testing and that the estates of deceased policyholders should receive payments. The second was to advise on any groups or classes of policyholders that should be paid as a priority with regard to the timing of payments, again with the exception of WPAs and their estates.
These recommendations could broadly have the following effects, subject to practical considerations:
Approximately 945,000 policyholders would receive payments equivalent to 22.4 per cent of their relative losses.
The remaining 100,000 policyholders with relative losses would receive no payment because their pro rata allocation amounts to less than £10.
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