Equitable Life Compensation: Heavy on Inquiries but Light on Solutions

The Public Administration Select Committee has said the search for compensation for Equitable Life policy holders who lost money when the insurer nearly collapsed has been heavy on inquiries but light on solutions.

It has asked the Government to delay announcing the details of the compensation package, expected next week, and that the timetable for the Comprehensive Spending Review should not be a driving factor.  (Rumours have emerged that the Government is planning to announce it will pay compensation totalling £1.5 billion.)

The Committee has urged the Government to re-engage with Sir John Chadwick who led the assessment into how much compensation Equitable Life policy holders should be paid.  His report recommended that compensation be capped between 20% and 25% of their losses, leading to a pay out in the region of £400-£500 million. 

However, the Parliamentary Ombudsman, with a different remit, concluded that compensation should be between £4 and 4.8 billion.  The Committee believes there is a fundamental incompatibility between Sir John’s position and that of the Ombudsman, saying they may have reached different answers because they addressed different questions.   They agreed with the Ombudsman that, if the Government’s proposals remain based on Sir John’s existing terms of reference, they are in principle an “unsafe and unsound” basis on which to proceed.

The Committee accepts that the burden to the public purse must be taken into account in assessing the level of compensation and said that while there must be some reduction of the compensation awarded it it must strike an appropriate balance between the interests of the tax payer and the interest of Equitable Life policy holders.

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