Teresa Hunter: Equitable disgrace continues saga of broken promises

Published on Friday 23 July 2010 15:32

WE ARE living in an age of uncertainty, not least financially. This has come as a shock to many of us who grew up believing the modern world could offer securities our ancestors never enjoyed.

Unfortunately, we had placed our faith in fool's gold. In antiquity, they knew better. The Roman poet Ovid wrote: "Everyone's a millionaire, where promises are concerned."

Just so. Never were so many empty promises made to so many, by so few. Or so it must seem to the victims of the Equitable scandal. Last week they were promised between 400 million and 500 million compensation to share among their 1.5 million policyholders, when they were hoping for 4.7 billion.

Rather than a windfall of thousands if not tens of thousands of pounds, they will have to settle for a miserly 250 to 500 apiece.

Naturally, they are incandescent. They have waited ten years for justice after Britain's oldest and "finest" insurance company collapsed taking a good chunk of their pensions with them.

Before the election the coalition partners promised them speedy compensation. Speedy, it may be, with payments due to begin next year, but nothing like as much as they thought they were promised.

It has always been my view that the last government missed a trick. Had it bunged Equitable victims 1 billion or two to go away when the scandal first broke, it would have been money well spent, to restore confidence in saving. From the start it was obviously a case of massive regulatory failure. Back in 2000 the nation's coffers were full.

Sadly, the world looks very different today. Britain is broke, and given the cuts in public spending to come, the coalition is in no position to be generous to any one group.

While Equitable victims may have been the first group to discover that promises, like pie crusts, seem made to be broken, they are not the only ones to have had the rug pulled from under them.

Women, who had been promised a state pension at 60, must now wait until 66, 67 or 68. Men too must work longer. The state second pension has been whittled away to virtually nothing.

Few who expected to retire on guaranteed company pensions, can look forward to the comfort in retirement they were promised. The credit crunch, and accompanying volatile markets, have slashed personal pensions.

So what went wrong? We conquered inflation, if that can be counted a catastrophe. But it meant investment returns plummeted, making pensions significantly more expensive.

We began living longer, something to celebrate surely? But again the price of a pension soared.

We introduced regulation. There are those who argue that this caused our pensions to crumble, and some new burdens placed on funds were onerous. But in truth, regulation merely shone a light on the gap between what companies were promising they could deliver and what was feasible.Promises 40 years hence are easily made, by those who know they will be long gone and never called to account for them.

In our post-modern world, we have learned to come to terms with disillusionments, such as the limitations of medicine, universal welfare, or education. In the world of finance, it could be argued, Equitable was merely the first in a long line of broken promises.

Of mice and mortgages

I confess to finding Clydesdale Bank's excuse for getting 10,000 mortgage borrowers' repayments wrong, and its cavalier attitude to number-crunching, positively chilling.

As we explain on this page, when rates slid, repayments fell a bit too much. Similarly, when they climbed, they went up a tad over the odds.

By some miracle of magic, all this over and underpaying was supposed to even out over a normal cycle of rate rises and falls. Against a background of sustained falls, the glitch compounded.

Like mice, these accidents never come in ones. I just hope other lenders have a more conscientious attitude. But probably in vain. Expect more of these adjustments in months to come.

History books' Darling

It's pointless trying to second-guess how history will view us because things can look quite different in ten, 20, 50 or 100 years' time.

But I suspect historians will hail as one of the greatest figures of the recession, one of the most modest, former Chancellor Alistair Darling.

To this day, not many people fully appreciate how close we came to catastrophe. It took nerves of steel to steer us through those rapids, and to get most of the tough calls right, as he did.

On Friday, we received an enormous boost with the news that the economy grew at its fastest rate for four years over the past three months.

Darling rushed out a statement saying it was Labour what won it. On this occasion he justly deserves credit, and for much more.