Equitable Life losers claim court victory

Equitable Life policyholders today welcomed a High Court ruling they said meant "hundreds of thousands" more people would become eligible for some form of compensation after the firm nearly collapsed.

Two senior judges quashed the Treasury's decision to reject findings made by parliamentary ombudsman Ann Abraham that there had been certain regulatory failures and "injustice and maladministration".

Lord Justice Carnwath and Mr Justice Gross, sitting in London, gave the Government 21 days to respond to its ruling and say what action it now proposed to take.

The judgment was a victory for the Equitable Members Action Group (Emag), which represents some 21,000 people who lost savings after the near-collapse in 2000 of one of the UK's largest private pension providers.

Emag director Colin Slater said after the ruling: "The court decided in Emag's favour in respect of the earliest and most valuable finding of injustice - that relating to the valuation of the mainstream pension business in respect of the return years 1990-1996.

"This is a very big win for Emag. Hundreds of thousands more policyholders are now eligible for some form of compensation, and their relative losses are very much bigger."

The Treasury can still ask the court of appeal itself to hear the case.

Government lawyers said they had won "a substantial part" of the case, including a ruling that it was for Government and Parliament to decide what were the appropriate remedies for compensating policyholders.

Lord Justice Carnwath said when allocating legal costs: "The claimants were the substantial victors but a significant discount is appropriate."

The court awarded Emag 60 per cent of their legal costs, estimated at well over £300,000.

The judges refused the Treasury permission to appeal. The Government was ordered to make an interim payment of £75,000 in legal costs to Emag within 14 days.

About a million policyholders saw up to half the value wiped off their pensions and retirement savings after Equitable admitted it could not afford to pay out bonuses it had promised.

Emag's legal challenge was given an urgent hearing because of the age of its affected members, and estimates that 15 were dying each day.

During the recent hearing that led to today's ruling Dinah Rose QC, appearing for Emag, said regulators who failed to sound the alert over Equitable's difficulties included the Treasury, DTI and FSA, which were advised by the Government Actuary's Department (GAD).

She said: "It is a feature of this case that during the critical period in the 1990s funds which were being managed by the society increased massively, by about six fold.

"Discretionary bonuses being declared annually by the society during the early 90s were at unsustainably high levels which would have been very attractive to new investors."

Ms Rose said GAD and the regulators failed to take action to ensure there were reserves for annuity guarantees, and to cover liabilities, until it was too late, with Equitable Life closing to new business in December 2000 and its directors resigning.

Ms Rose said: "We say the Government is not entitled to evade reality, which is that it is responsible for falling very seriously below acceptable standards of administration, and people are entitled to compensation as a result."