VICTIMS of the Equitable Life collapse have had to wait 10 years to get to the bottom of what went wrong at Britain's finest insurance company and why their life savings were left in shreds.
Within a couple of days they will hear who was to blame
for the collapse of Britain's oldest mutual when Parliamentary Ombudsman Ann Abraham finally publishes her long-awaited report into its downfall.
Her findings are a foregone conclusion. It has been an open secret for more than a year that the Ombudsman would find the Government and a succession of regulators guilty of maladministration.
This will unleash calls for £4bn in compensation for more than a million investors whose contracts were slashed by a series of cuts to their policy values. But their cries are likely to fall on deaf ears, just as they have over the past eight years. When he was Chancellor, Prime Minister Gordon Brown made it clear that public money would not be forthcoming to ease their plight.
Even if he now wanted to offer an olive branch, the huge bailouts of Northern Rock and victims of company scheme collapses have left his coffers empty.
But Equitable policyholders' grounds for justice are unequivocal. The first in-depth report commissioned by the Financial Services Authority and completed by Ronnie Baird in 2001 pointed to significant regulatory failings. It did, though, largely clear the FSA itself of responsibility, as the watchdog did not legally become responsible for regulating insurers until 2001, by which time the damage had been done and little could hope to avert a collapse.
The next major report, from Scottish judge Lord Penrose, wasn't quite so magnanimous about the FSA's role, but was sharply critical of the Government Actuary's Department (GAD), which was responsible for Equitable's regulation over the most extended period, working on behalf of the Department of Trade and Industry and the Treasury when they were the watchdogs.
Penrose said the GAD's supervision of Equitable was "complacent, lacking in challenge and hesitant to criticise". It also implied that GAD actuaries were in awe of the society's executives, who were more senior members of the old boys actuarial network prevalent in the early 1990s.
But Penrose saved his most scathing criticism for Roy Ranson, who ran the company from 1991 to 1997, and who he concluded had a manipulative and bullying management style.
However, the subsequent findings of Actuarial Profession disciplinary proceedings against the management, including Ranson, former chief actuary Chris Headdon and former chief executive Alan Nash, were even more damning.
These found everything started to go wrong because of Ranson's ambitions for the company, which grew eightfold from £4bn under management in 1988 to £34bn 12 years later. Such rapid growth would be dangerous for any insurer, but it was achieved by paying out more in bonuses than the company had earned. It overpaid in good years, and did not adjust its policy even when markets fell sharply.
This led investors to believe the company was achieving much better returns than it was. At the same time it was offering highly attractive guarantees which allowed pension savers to convert their pots into annuities at a 12.5% rate.
Again, when annuity rates collapsed to 7% it did not adjust this policy, nor the very generous terms on which they were granted.
Worse still, the number-crunchers had got their sums wrong. Equitable had actually lost 10.4% in 1990, which made the overpayment even more critical. Returns were negative again in 1994.
The society's sums were now well out of kilter, but this was concealed from potential investors. Neither were they informed that the fund had two classes of shareholders: one (those with guarantees) with priority rights over the other.
Yet the GAD failed to force Equitable to change its strategy or to disclose the risks to new investors.
Ranson attempted to head off the approaching train crash by introducing different bonus rates for different customers. Under the rules at the time this was illegal without full policyholder assent. But he did not tell policyholders for three years.
When a few policyholders caught on and complained, the society instigated legal proceedings which it fought all the way to the House of Lords. However, the law lords decided guaranteed pension promises had to be met in full, thereby effectively bankrupting the company.
Equitable sought a buyer, but when none was forthcoming it closed its doors to new business in 2000, at which point investors were forced to give up their guarantees, and many saw their pensions cut sharply as a result.
In the wake of Abraham's ruling, Equitable campaigners will launch a major campaign calling on the Government to distribute £4bn between the surviving 1.2 million investors who saw their savings slashed as a result of the collapse.
However, paying redress would be complicated. Different groups of policyholders were impacted in different ways. Furthermore, only 275,000 policyholders remain with the society, whose funds under management have fallen to £7bn. More than a million either withdrew their cash or had investments switched to another company.
More than 30,000 of the original investors have died, according to the Equitable Members Action Group, which is why it is calling for a fund to be set up immediately.
It plans to unleash a concentrated campaign to force the Government to fully compensate the victims, in the light of the Parliamentary Ombudsman's report.
Who was hit hardest•
Late joinersThey were encouraged to join after September 1998 when Equitable's legal advisers warned it could lose the court battle over guaranteed annuities. New investors were reassured their money was safe, and given misleading information about the likely outcome of the legal battle. They were misled about the implications should they move.
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Those without guaranteed annuities When they invested, members were never told another class of policyholders in the with-profit fund had a superior claim on the fund.
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Guaranteed annuitants These never received the guarantees they were promised.
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With-profit annuitants These were initially told that their pensions would not be cut, but many subsequently saw their retirement income reduced by 40%.
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Employees with AVCs in EquitableThey were not able to unilaterally switch their holdings elsewhere.
