Equitable Life (Payments) Bill

I want to make some more progress. The fact that with-profits annuitants who bought their annuities before 1 September 1992 have seen a reduction in the level of payments that they currently receive from their annuities is a result of poor investment market performance and the fact that their earlier annuity payments were artificially high. That was because of the structure of the policies that they bought, or because they received too much in the earlier years, as Equitable Life paid out more on a discretionary basis than it should have. Unlike the value of conventional annuities, the value of a with-profits annuity varies according to investment return. Although the reductions are regrettable, they are not instances of Government maladministration, and therefore Government should not be providing compensation for that group of policyholders. A number of Members mentioned Sir John Chadwick. My hon. Friend the Member for Harrow East (Bob Blackman) said that Sir John's report had been rubbished by some people. The report included a mechanism for the calculation of internal relative loss that would have dealt with the pre-1992 annuitants, but, as my hon. Friend said, there was widespread criticism of it, not just in the House but by all the commentators, by EMAG and by others. No one came forward with an alternative scheme to compensate the pre-1992 annuitants, because no one had really thought about them. It needs to be recognised that they fall outside the parameters of the ombudsman's report, because she did not envisage a need to compensate them. Let me now deal with the future role of the ombudsman in this process. When we came to office, we pledged to"““implement the Parliamentary Ombudsman's recommendation to make fair and transparent payments to Equitable Life policyholders””." My right hon. Friend the Chancellor of the Exchequer confirmed that pledge at the time of the comprehensive spending review, when he announced our plans that we have for the scheme. As we all know, the ombudsman has worked tirelessly to help to ensure that justice is delivered to the policyholders who have waited so long for a resolution of this issue. Her continued interest in the matter has been of great help, and has brought some clarity to what is clearly a very complex issue. The ombudsman has been generous with her time, and has continued to contribute to the debate. She has, for instance, appeared before the Public Administration Committee. I discussed the Chadwick report with her in the run-up to the spending review, and her views helped the Government to reach a view on the losses suffered by policyholders. I should welcome any continued contribution that the ombudsman might wish to make to the debate on Equitable Life, and if she wished to advise Parliament of her views on the work of the independent commission, that would assist both the House and the Government; however, I think it would be inappropriate to require her to play such a role. Her role and remit are clearly set out in the Parliamentary Commissioner Act 1967, which does not give the ombudsman a standing obligation to continue to advise this House as to the response to her reports. There is good reason for that, not least the need to make appropriate use of the ombudsman's resources. It must be for the ombudsman herself to decide what role she wishes to play once she has finished her investigation. The hon. Member for Nottingham East (Chris Leslie) asked how we would implement the ombudsman's approach. We have said that the Government accept the calculation of relative loss as £4.3 billion. The ombudsman wrote to Members on 26 July this year saying that she recognised that the relative-loss approach adopted by Towers Watson"““provides a firm foundation on which to build.””" That is the basis on which we introduced the scheme and accepted the losses. The independent commission will advise on the allocation of remaining funds to not-with-profits annuitants, apart from the post-1992 WPAs. The Equitable Life database allows us to apply relative-loss methodology to each policyholder's data, so there will be no individual requirement to claim or provide evidence of claim, or indeed to reveal the instances of maladministration that are relied on. That will benefit all policyholders who suffered relative loss. The ombudsman spoke of reliance on regulatory returns, but Sir John's alternative approach does not require us to ascertain what reliance was involved. Effectively, that gives people the benefit of the doubt, and in my view it means a simpler, fairer and more transparent scheme. Sir John also talked about the distribution of losses, which was mentioned by my hon. Friend the Member for Harrow East. Thirty per cent. of policyholders suffered no loss at all, about 405 suffered a loss of between £1 and £1,000, and 60% suffered a loss of between £1 and £5,000. Therefore, as Members will recognise, the distribution of losses is quite varied. A large number of policyholders either have no loss or suffered a relatively small loss. That gives the payments commission some flexibility in respect of the design of the scheme and how to use the pot. I should, however, stress to Members that the amount that is available is fixed, so while we may want to be more generous to one group, that would mean that another group suffers. We need to bear that in mind in considering eligibility. I encourage my hon. Friends to reject any amendments in this group that are put to a vote. We have come up with a fair scheme that is based on the ombudsman's findings; the loss reflects her calculation. I therefore think this is a good scheme, representing a balance of fairness between policyholders and taxpayers.