By Richard Johnstone | 24 April 2013
Auditors have criticised the Treasury’s management of a compensation scheme for members of the pensions and life insurance company Equitable Life members, warning that a deadline to make all payments could be missed.
In an analysis of the Equitable Life Payment Scheme, the National Audit Office said it was not set up ‘efficiently and effectively’ because the government wanted first payments to be made just eight months after it was announced.
The scheme was established to provide ex gratia payments to policyholders of the Equitable Life Assurance Society after the failure of the pensions and life insurance company. Policyholders who had made contributions into investments or pensions over the course of their working lives lost retirement income when the firm almost collapsed and had to close to new business in 2000. A total of 1.46 million people were affected.
An investigation by the Parliamentary and Health Service Ombudsman in 2008 concluded regulatory failure was partly responsible for Equitable Life’s difficulties. In November 2010, the Treasury was given powers to make more than a million compensation payments to policyholders, with a total of £1.5bn earmarked. The first payment was due to be made by June 2011.
However, today’s Administering the Equitable Life payment scheme report said this timetable ‘impeded’ the programme, as not enough preparation could be done before it went live, including tracing those affected.
Although the government’s target for the first payments was met, further payments to former policyholders had been severely delayed as the data was old and incomplete.
It was initially hoped that £500m would have been paid out through the scheme by the end of 2011/12, but this did not happen.
By March 2013, a total of 407,000 payments, worth £577m, had been made, only 35% of the planned total. This meant that the Treasury’s objective to have paid all former policyholders by the end of March 2014 was at risk, auditors warned.
Auditor general Amyas Morse said: ‘Previous NAO work on government compensation schemes has shown that they can be difficult to set up and administer. In the case of Equitable Life, the government failed to take on board the lessons.
‘Not enough preparation was done in the short lead-up to the scheme and problems emerging from poor data caused delays. They now need to produce a realistic plan indicating how and by when they will make the remaining, more difficult, payments.’
