policies with guaranteed annuity rates
In July 2000 the House of Lords reached its decision in the case of Equitable Life v Hyman. The issue at stake was whether policyholders whose policies contained guaranteed annuity rates should enjoy the same terminal bonuses as policyholders whose policies did not include these rates.

Complaints about these policies started arriving at the PIA Ombudsman Bureau in July 1998. The majority related solely to the issue now resolved by the House of Lords. Both the PIA Ombudsman Bureau and Equitable Life are required to recognise the House of Lords judgment. Most of the investors who complained to the PIA Ombudsman about the original question have accepted this and are now being included within the ‘rectification scheme’. This is a scheme being set up by Equitable Life, with the approval of the FSA, as a direct result of the House of Lords decision. The scheme is a means for Equitable Life to give effect to that decision.

Our position regarding complaints brought to us that concern only the issue now resolved by the Lords, is that we can do no more than require Equitable Life to act in accordance with the House of Lords judgment, and to deal with matters in accordance with the rectification scheme.

subsidiary annuities
A number of the Equitable Life complaints that reach us have identified other issues concerning the interpretation of the contract terms and conditions of subsidiary annuities (for example, the decision to take a spouse’s pension or a guarantee period). Specifically, these investors have asserted that these subsidiary annuities should enjoy the benefit of the guaranteed annuity rates.

We judge each complaint on its own merits and not all Equitable Life policies are worded in the same way. We therefore need to consider the individual policies carefully to decide what is and is not allowed. However, the majority of the complaints referred to us on these matters have a wording that we have interpreted as not allowing the policyholders to have the benefit of the guaranteed annuity rates on any element of their annuity that they sacrifice for the benefit of a subsidiary annuity. Generally, these policyholders should retain the benefit of the guaranteed annuity rates on the element of the benefit they take in the form permitted by the policy wording. However, for any element that they sacrifice for a subsidiary annuity, the calculations are properly made at current annuity rates.

alleged mis-selling
In recent months we have received several complaints alleging mis-selling of products after the matter was referred to the courts, and, indeed, sometimes before that. The assertion is that Equitable Life and its officers knew, or should have known:

Our investigation of these complaints has been overtaken by the fact that, through the Treasury Select Committee, Parliament has asked several bodies, including the FSA, to establish whether, as a result of misrepresenting the potential exposure to an unfavourable decision in the courts, Equitable Life mis-sold policies during the period under consideration.

In order to make a final decision on a complaint, we have to consider all the relevant facts. It would be inappropriate for us to continue looking into complaints where relevant issues are being investigated elsewhere and additional information will become available as a result. We have therefore suspended our consideration of these complaints until the results of the investigations are available.

Other issues

market value adjustments
Since the House of Lords judgment, a number of other issues have come to the fore, many of them precipitated by the subsequent difficulties Equitable Life has experienced. It has been alleged that, for various reasons, it is wrong for Equitable Life to apply the market value adjustment (MVA) to withdrawals from the with-profit fund. The MVA is an adjustment made to the value of withdrawals from the with-profit fund to ensure that, where there are a large number of withdrawals from the with-profit fund, the remaining policyholders with investments in that fund are not unfairly disadvantaged. As we have stressed, we consider each case on its own merits. We do, however, note that MVAs are relatively common in with-profits policies and that, to date, Equitable Life’s application of the MVA has not been considered unreasonable by its regulator. We are also aware that some policyholders have referred the application of MVAs to the Office of Fair Trading and that the Office of Fair Trading has now referred the matter to the FSA.

reduction of bonuses
We have received some complaints that the reduction of bonuses is wrong. Such matters are normally outside the PIA Ombudsman’s Terms of Reference, which state (6.2):

‘The ombudsman shall have no power to investigate or consider a complaint if the complaint is in respect of a life policy investment, to the extent that it concerns those actuarial standards, tables and principles which the firm may apply to any such policy including in particular (but without being limited to) the method of calculation of surrender values and paid up policy values and bonus system and bonus rates applicable to the policy in question (provided that this shall not preclude the ombudsman from considering any complaint to the extent that it concerns the application of the PIA rules, or if relevant, the rules of any other recognised body or organisation ...’