1. Background to the scheme
The Equitable Life Payment Scheme was set up in 2010 to make payments to Equitable Life policyholders in response to the 2008 report of the Parliamentary and Health Service Ombudsman, Equitable Life: A decade of regulatory failure, which had found government maladministration in the regulatory returns of the Equitable Life Assurance Society during the period 1992–2000. The government accepted all the Parliamentary Ombudsman’s findings of maladministration, and as a result established the Equitable Life Payment Scheme (“the scheme”).
The detailed rules behind the scheme were published in 2011, but in short the scheme has made payments to eligible policyholders who had suffered a relative loss. Relative loss reflects the difference between the value of a policyholder’s Equitable Life policy and what they would have received if they had decided at that time to invest with a different company.
Some 1 million policyholders were eligible for a payment from the scheme, and the government calculated policyholders’ relative losses at £4.1 billion. However, given significant pressures on the public finances and the need to balance fairness to policyholders and fairness to the taxpayer, the government decided that up to £1.5 billion was the appropriate level of funding for the scheme. This was in line with the Parliamentary Ombudsman’s report, which acknowledged that it was appropriate to consider the potential impact on the public purse when determining the level of payments.
The government then considered how the allocated funding should be distributed to policyholders. In line with the many representations HM Treasury received, the decision was taken to cover the relative losses of With-Profits Annuitants in full on the basis that they were the most vulnerable group. This left around £775 million for those who had invested in savings products such as bonds and pensions (known as non-With-Profits Annuitant policyholders, or non-WPAs), who had suffered total relative losses of around £3.5 billion.
To determine how best to allocate this money, the Independent Commission on Equitable Life Payments recommended that non-WPAs should receive a pro rata allocation of these remaining funds in accordance with the size of their relative loss. This means that payments to these policyholders equate to 22.4% of their relative loss. Furthermore, as part of closure the scheme was able to double the payments made to non-WPA policyholders who were in receipt of Pension Credit, thus providing additional support for this vulnerable group.
The scheme started to make payments in 2011, and was due to close in 2014. After an extension to its life to maximise the payments that could be made, the then Chancellor announced in the Summer Budget 2015 that the scheme would close to new claims on 31 December 2015. Following this the scheme has begun the process of winding down and completing any claims. While a very small number of claims remain in train, the majority of payments have now been made. This is therefore the final progress report that the scheme will issue.
2. Payments made under the scheme
The scheme’s final figures were compiled in August and show the situation on 31 August 2016. As of that date, the scheme has issued payments of just over £1.12 billion to 932,805 policyholders. This means the scheme has now issued payments to 90% of eligible policyholders.
The figures are broken down as follows:
38,298 With-Profits Annuitants (WPAs), their estates and (where applicable) second annuitants have been issued with payments by the scheme. These initial and subsequent payments total £371.0 million. These payments will continue for the duration of the annuities and represent the remainder of the £1.5 billion that is the maximum provision for the scheme
894,507 non With-Profits Annuity investors have been issued lump sum payments totalling £751 million
The table below shows the distribution of payments across the various policyholder cohorts.
Distribution of payments by size of initial payment
|Paid||Total initial payments only||WPA (initial payments only)||non-WPA|
|£10,000 to £25,000||8,115||£119,265,445||1,079||£15,674,155||7,036||£103,591,290|
|£5,000 to £10,000||18,112||£124,233,969||2,182||£15,088,455||15,930||£109,145,514|
|£2,000 to £5,000||59,743||£183,301,991||6,110||£19,074,487||53,633||£164,227,504|
|£1,000 to £2,000||86,864||£121,921,216||6,825||£9,767,361||80,039||£112,153,855|
|£250 to £1,000||266,217||£140,615,626||14,715||£8,235,742||251,502||£132,379,884|
|£100 to £250||191,960||£31,502,700||4,943||£861,961||187,017||£30,640,739|
|£50 to £100||124,622||£9,099,454||1,415||£107,004||123,207||£8,992,450|
|Less than £50||175,537||£4,770,615||814||£23,741||174,723||£4,746,874|
Nearly 53% of all payments made by the scheme were for under £250. This rises to over 54% when the calculation excludes the WPAs. Over half of non-WPA policyholders will have had a total relative loss of under £1,116. The single most common size of payment for all groups was between £250 and £1,000. All payments have been tax free.
The administration of the scheme cost £73 million between 2011 and 2016. This means that every £1 paid to policyholders has cost slightly less than 7 pence in administration costs.
3. Tracing policyholders
When the scheme started it received a file of data from Equitable Life which contained the personal details held by Equitable Life for all eligible policyholders. As is well documented, the scheme has gone to significant efforts to trace eligible policyholders. This effort was necessary as policyholders’ address data were up to 20 years old and could not be relied upon. These challenges were compounded because the personal details of policyholders who invested through their company pension scheme (some 500,000 people) were frequently not captured by Equitable Life. To meet these challenges, the scheme carried out extensive tracing efforts, which can be summarised as follows:
3.1 Automated tracing activity
Records were sent to electronic tracing services which verified people’s addresses against records such as credit histories or the electoral roll.
3.2 Untraced mailings
For those policyholders who did not pass the electronic tracing activity, the scheme also wrote to the last known address (where held) of policyholders asking them to come forward.
3.3 Group scheme trustees and administrators
As mentioned previously, for policyholders who bought their policy through their company pension, the scheme contacted the trustees and administrators of those pension schemes to request policyholders’ details.
3.4 Media and advertising
In late 2013 the scheme ran an advertising campaign alerting the public to the potential for payment. Advertisements were placed in national newspapers, magazines and online. A further statutory public notice was placed in all the national dailies in the run-up to the scheme’s closure to new claims.
3.5 Using Department for Work and Pensions data
As a final measure, in collaboration with the Department for Work and Pensions (DWP), the scheme sent letters to untraced policyholders using current addresses held on the DWP’s system. This was completed for the 77,000 policyholders for whom the scheme held sufficient information for the DWP to match their record, down to a payment value of £50, and was completed in Autumn 2015. Over 50% of these policyholders were issued with payments as a result.
3.6 Deceased policyholders
Payments due to deceased policyholders could be claimed by their estates. To identify deceased policyholders the scheme wrote to the last known address of the policyholder or searched the records available in the probate office.
3.7 Unpaid policyholders
Despite these significant efforts, as of 31 July 2016 there remained 107,647 policyholders to whom payments could not be issued. The reasons for this are as follows:
the records for 39,654 policyholders did not have enough information to carry out electronic tracing (such as name, address or National Insurance number). Of that group, 37,990 had bought their policy through their company pension scheme and that pension scheme did not supply their details
53,477 policyholders failed the electronic tracing search and did not respond to a letter sent to their last known address or to the letter forwarded via the DWP
14,516 had died and their estates did not claim the payment, despite attempts by the scheme to contact those estates
An analysis of the untraced policyholders shows that 70% of policyholders who could not be paid were due under £250.
Distribution of amounts due to policyholders who could not be paid
|Not issued||Total initial payments only||WPA (initial payments only)||non-WPA|
|£10,000 to £25,000||493||£7,180,244||74||£8,381,127||419||£6,108,380|
|£5,000 to £10,000||1,204||£8,298,120||183||£8,381,127||1,021||£7,052,470|
|£2,000 to £5,000||3,690||£11,351,180||269||£8,381,127||3,421||£10,515,513|
|£1,000 to £2,000||5,796||£7,700,879||231||£8,381,127||5,565||£7,413,428|
|£250 to £1,000||21,140||£10,562,093||487||£8,381,127||20,653||£10,291,039|
|£100 to £250||20,591||£3,322,998||170||£8,381,127||20,421||£3,294,756|
|£50 to £100||15,981||£1,158,756||84||£8,381,127||15,897||£1,152,550|
|Less than £50||38,599||£1,020,919||100||£||38,499||£1,018,823|
4. Complaints to the scheme
2.6% of traced and paid policyholders made a complaint. If policyholders were not satisfied by the response from the scheme they could take their complaint to the Independent Review Panel. 1,652 complaints were received by the scheme’s Independent Review Panel, around 1,100 of which were from a co-ordinated campaign. Of the 1,652 appeals, 160 have been upheld.