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Equitable Life to shut down with surprise £1.8bn policyholder windfall

Patrick Collinson
Actor Honor Blackman campaigns with the Independent Action Group for Current and Ex Equitable Life Policyholders outside Westminster in 2009. Photograph: Matt Stewart/Rex Features

Equitable Life, the scandal-hit pension company that came close to collapse in 2000, is finally shutting down with a surprise £6,900-a-head windfall for the last remaining policyholders.

Around 261,000 people will share in a £1.8bn payout after Equitable said it would transfer its business to a separate insurer, Reliance Life, and unlock the capital tied up in funds.

The windfalls will mean that those customers who clung on after Equitable nearly went bust in 2000 will eventually see a profit on their policies. But around 800,000 former policyholders who were shifted to other providers or encouraged to cash in and accept their losses will not get anything.

Paul Braithwaite, whose Equitable Members Action Group has led an 18-year campaign for compensation, said policyholders who left Equitable still remain £2.5bn out of pocket.

“Equitable has crafted an elegant termination strategy for the small number of remaining members, but it will be no benefit to the vast majority of victims.

“If the remaining members vote in favour of this deal, they they are likely to come out ahead. But for every one of them, there are five who left the society who are much worse off.”

Existing members will be asked to vote on the deal in mid-2019 with payouts towards the end of the year.

Equitable chief executive, Chris Wiscarson, said: “When the Equitable closed to new business in 2000, it was inevitable that at some point the society had to come to an end. The benefit of bringing Equitable to an end sooner rather than later is that we can capture for with-profits policyholders the near-record high values of the investments backing their policies.”

The payouts will bring to a close two decades of disaster for Equitable Life, which was founded in 1762 and grew to become the country’s second largest life insurer. But decades of excessive payouts and reckless guarantees on policies eventually led to its downfall.

It found itself locked into paying out high interest rates promised at a time of high inflation in the 1970s. But when inflation and interest rates fell, Equitable found it hard to fund those commitments, leaving a £4.4bn hole in its accounts.

In 2004, a report by Lord Penrose accused the former Equitable management team of “dubious” practices and nurturing a “culture of manipulation and concealment”.

Between 2006 and 2007 Equitable transferred hundreds of thousands of policyholders to Canada Life and Prudential, while a highly critical European parliament investigation demand compensation for victims.

In 2009 former Avengers star and Bond girl Honor Blackman added her voice to protests demanding government compensation in a demonstration outside the Houses of Parliament, at which 15 wooden coffins were borne aloft to symbolise the 15 Equitable Life pensioners who die each day, “waiting for justice”.

By 2010 the government agreed a £1.5bn compensation package, mostly aimed at 37,000 elderly annuitants who had “suffered most”.

But EMAG said the total compensation figure should be closer to £4bn, and continues its fight for justice, with a new website for victims launched just this week.

“The Treasury has run an attrition strategy, cynically depending on people walking away, dying or just giving up. But we will continue to pursue our case for the £2.5bn outstanding, and we have the support of 233 MPs,” said Braithwaite.

So how has Equitable been able to afford windfall payouts after decades of disatrous financial management? In many ways it has been saved by the collapse in interest rates since the great financial crash, which has made its bond investments more valuable.

When Equitable nearly went bust in 2000 it moved the vast majority of its money into bonds, whose underlying capital values have risen as interest rates have fallen, allowing the insurer to finance the payouts.

The windfalls will be added to Equitable’s policies and then transferred to Reliance Life, part of the £24bn US-backed Life Company Consolidation Group, which specialises in buying up so-called zombie funds which have closed to new business.