More than 200,000 Equitable Life Assurance Society policyholders risk not receiving compensation they’re entitled to, lawmakers said.
By setting arbitrary dates for the beginning and end of payments to reimburse more than 1 million people who lost their savings when Equitable Life failed in 2000, the Treasury failed to properly plan its operation, the House of Commons Public Accounts Committee said in a report published today. Savers who cannot be located in time for the end of payments in March 2014 may therefore not get any money, the cross-party panel said.
“Hundreds of thousands of conscientious savers are losing out because of the Treasury’s failure to get a grip,” the committee chairwoman, opposition Labour Party lawmaker Margaret Hodge, said in an e-mailed statement. “It focused on an arbitrary target for making the first payments at the expense of proper planning and this has led to unacceptable delays and spiraling costs.”
Equitable Life struggled to stave off collapse after the House of Lords ruled in 2000 it couldn’t abandon promises to policyholders to pay bonuses it could no longer afford. The ruling left the company with a 1.5 billion-pound hole in its accounts, forcing it to cut policy payouts.
The compensation fund still has 370 million pounds ($570 million) to pay out to 664,200 policyholders, having paid out 577 million pounds to 407,000 people by March this year. Those receiving compensation from the 1.5 billion-pound fund have also not been given sufficient information on how their claims have been calculated, the committee said.
“Only 35 percent of policyholders have received payments despite 72 percent of the budget being spent,” Hodge said. “Twenty percent of policyholders - between 200,000 and 236,000 people - might never receive any money at all because the Treasury believes it may be unable to trace them.”
Previous compensation programs should have led the Treasury to invest more in getting the governance and systems right, the panel said. Poor planning meant only 168 million pounds of the 500 million pounds expected to be paid out between June 2011 and March 2012 was delivered.
Paul Weir, communications director of the Equitable Life Action Group representing policyholders, told the committee the political need to be “seen to be taking action” overrode the importance of building systems to deliver payments effectively.
The Treasury should bring forward its advertising of the closure of the program in March next year to allow as many policyholders as possible to lodge claims, the committee said.
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