£1 billion awarded to Equitable Life policyholders

10.59.57am BST (GMT +0100) Tue 26th Oct 2010

The collapse of Equitable Life has been a long-standing concern of mine. It is therefore with great relief that I can report that, as part of the Comprehensive Spending Review, the Coalition Government has been able to award £1billion to policyholders who suffered as a result of the companies' collapse.

This amount will cover both the initial costs of the first three years of regular payments to people who had With Profits Annuitants (WPA), based on relative loss, and all payments to other policyholders.

The Government expects the total amount of funding for the scheme to be in the region of £1.5 billion : this is over three times the loss figure that Sir John Chadwick's methodology produced. WPAs, who suffered most from the collapse and are generally the eldest policyholders, will receive regular payments from next year, based on their full past and future relative losses. In this way, the payments will effectively replace the income that they would have received from their Equitable Life policies. These payments will be free of tax.

Given the significant pressures on public finances, the Government is simply not able to pay out the full value of relative loss for all policyholders. The Government has asked the Independent Commission on Equitable Life Payments to provide advice on the allocation of funding to policyholders other than WPAs.

I firmly believe that the Coalition Government's action in this area demonstrates our commitment to fairness. Despite the overwhelming deficit which we inherited from the previous government, the Comprehensive Spending Review delivered a substantial settlement for Equitable Life policyholders, which I hope will go some way towards rectifying the injustice suffered.