HL Deb 13 December 2000 vol 620 cc363-4

2.58 p.m.

Lord Newby asked Her Majesty's Government:

Whether the Financial Services Authority has taken adequate action to safeguard the interests of Equitable Life policyholders.

Lord McIntosh of Haringey

My Lords, first I declare an interest in this issue as an Equitable Life policyholder through my additional voluntary contributions to the parliamentary pension scheme, an interest which is shared by all other members of the parliamentary pension scheme and the Civil Service pension scheme.

We have noted the statements from the Financial Services Authority and Equitable Life and welcome the fact that they are working closely together to bring the matter to a satisfactory conclusion to protect the interests of policyholders. The FSA is watching the situation carefully and will not hesitate to step in as necessary.

Lord Newby

My Lords, I suspect that virtually every family represented in this House either has an Equitable Life policyholder within it or knows somebody who has. So this issue deeply touches many people.

Will the Minister accept that deep anxiety exists in relation to the urgency of the current situation? Will the Government not just leave the FSA to take action—though it clearly has the prime responsibility—but also have urgent discussions with that organisation to ensure that it protects Equitable Life policyholders, particularly against the possibility of large numbers of them simultaneously seeking to transfer their policies? Further, will the Treasury, in the light of the problems that have arisen with Equitable Life, undertake to conduct a full review of its plans for stakeholder pensions, particularly in respect of the cap on management fees?

Lord McIntosh of Haringey

My Lords, I made clear that the Government share the concerns rightly expressed by the noble Lord, Lord Newby. However, as he will remember from his participation in the proceedings on the Financial Services and Markets Bill, the Treasury has a contract with the Financial Services Authority to conduct the regulation of the insurance industry. I can assure the noble Lord that the contractual rights of policyholders will be respected. After all, the company is solvent; this is not a question of insolvency.

Lord Merlyn-Rees

My Lords, as another noble Lord who has a personal interest in these matters, I ask my noble friend what it means when he says that the FSA will watch matters. It will watch and do what? How can it intervene, and under what conditions?

Lord McIntosh of Haringey

My Lords, the FSA has a contractual responsibility to protect the interests of policyholders. As I made clear in my first Answer, it will not hesitate to step in if that becomes necessary. However, I should again make clear that existing policyholders' contractual rights are not at risk. They will be protected. Equitable Life has funds of around £30 billion, which are adequate for meeting the contractual rights of existing policyholders but would not have been adequate if the company had continued to take on new business. That is why it closed its doors to new business but is not closing down.

The Earl of Northesk

My Lords, I am sure the Minister will recall his observation on 22nd June that, In the case of insurance companies, the regulator must have regard to the ability of the business to fulfil reasonable expectations of policyholders and potential policyholders".— [Official Report, 22/6/00: col. 517.] In respect of Equitable Life, is that still the Government's position, or do they now subscribe to the reported view of an FSA spokesman that complaints of policyholders who believe they have been misled should be lodged with Equitable Life rather than with the authority?

Lord McIntosh of Haringey

My Lords, the noble Earl, Lord Northesk, is good at reminding me of things that I said a long time ago. I am relieved that on this occasion I can confirm that what I said on 22nd June, which I had entirely forgotten, is 100 per cent correct. That does not conflict with the reported view of the FSA spokesman, though I have not seen it myself, that the first recourse of policyholders is to Equitable Life. But that does not mean that there is not recourse to take complaints to the Financial Services Authority if necessary.

Lord Crickhowell

My Lords, I join with others in declaring an interest. Is not the noble Lord a little rash in giving the assurance that he did in relation to the adequacy of funds? Surely that depends on the actuarial assumptions made, particularly in regard to life expectancy. Is it not a fact that there are uncertainties which will continue to cause anxiety arid that no absolute commitment can be made?

Lord McIntosh of Haringey

My Lords, the noble Lord, is right in the sense that risk management issues are enormously complicated as are the actuarial considerations that have to be taken into account. But there is no reason to suppose that on any reasonable actuarial assumption Equitable Life will not be able to meet the reasonable expectations of its policyholders. At the same time, I have to say that although those reasonable expectations may have been based on a portfolio held by Equitable Life which consists of a mixture of equities, funds and gilts, the company will inevitably be forced to move further towards a portfolio of bonds and gilts rather than equities. That may reduce the expectations. To that extent, clearly some expectations will be disappointed.