Ministers 'must face reality' on Equitable Life claims

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THE government was accused yesterday of shirking its responsibilities to Equitable Life policyholders, at the launch of a High Court challenge to its compensation plans.

Equitable Members Action Group (Emag), which represents about 21,000 policyholders, is disputing the government's rejection of several findings of maladministration and injustice set out by the parliamentary ombudsman, Ann Abraham.

In the High Court yesterday, Dinah Rose, QC, acting for Emag, said the government could not "evade reality" over the issue of compensation.

She argued that the government had fallen "very seriously below acceptable standards of administration" and that policyholders were therefore entitled to compensation.

"The government has failed to provide cogent reasons for rejecting the ombudsman's findings and has accordingly acted irrationally in rejecting them," said Rose, who accused the government of "blinkered single-mindedness" in its battle against claims for full compensation.

Last year, Abraham found that regulatory failure by various government departments contributed to thousands of policyholders losing their retirement savings following the near collapse of the insurer in 2000. She proposed a compensation scheme for more than a million policyholders who lost out as a result of the government's handling of the crisis.

The insurer sold pension policies guaranteeing investors a minimum annuity rate, but was unable to keep its promises.

The government, which previously blamed Equitable Life's management for the failure of what was once one of the UK's biggest pension companies, has admitted some regulatory failures, but insisted only policyholders deemed to have suffered "disproportionately" would receive compensation.

But in her most recent report, published in May, Abraham pointed out that, under the government's proposals, many policyholders with a real claim to compensation would not receive a penny. Emag, which estimates that 15 policyholders due compensation are dying every day, believes that, under the government's plans, just one in ten investors who lost money would be compensated.

The issue was also debated in the Commons yesterday. Treasury minister Liam Byrne claimed that, while the government agreed with some elements of the ombudsman's maladministration charge, it did not believe there was a need for across-the-board compensation, and said such a scheme would be costly for the taxpayer.

Opposition MPs accused the government of dragging its feet over the issue of compensation and described the government's proposals as "inadequate as a remedy for injustice".

The High Court hearing is expected to conclude on Friday, with the judgment following in the autumn.