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EQUITABLE life policyholders suffered "serial regulatory failure" and should receive up to £4.5 billion in compensation from the government, a damning inquiry finds today.
The Parliamentary Ombudsman Ann Abraham's report says that the Government gave them a "wholly misleading picture" of the safety of their investments.
One million people saw their retirement savings slashed after the company - the world's oldest mutual life insurer - almost collapsed at the start of the decade, and thousands are dying every year while they wait for compensation.
In the 2,800-page report published today, Ms Abraham said that the various regulators, such as the Department of Trade and Industry, the Government Actuarys Department, and the Financial Services Authority, failed to use the powers available to them to protect the interests of policyholders.
She said: "Those responsible for the prudential regulation of Equitable Life failed to do so throughout the period covered in my report.
"I have alerted Parliament to the injustice which I have found in this case resulted from serial maladministration on the part of the former Department of Trade and Industry, the Government Actuarys Department and the Financial Services Authority."
The report, called Equitable Life: a Decade of Regulatory Failure, said the debacle "shares some similarities with the current example of Northern Rock", which the government did agree to bail out.
The life insurer came close to collapse in 2000 after being ordered by the High Court to fulfil financial promises which it could not afford, prompting four years of investigation by the Ombudsman.
It was entrusted with more than £30 billion of investors' cash, but was left struggling after it lost a £1.5 billion legal battle involving guaranteed annuity rates. When these became too expensive, the company reneged on the promises it had made, and the House of Lords ruled that its actions were unlawful.
Over the past decade, campaigners have battled for official payouts, but ministers have resisted, claiming the company was to a large degree the author of its own misfortunes.
Chancellor Alistair Darling will insist that the government cannot be held liable for all the cash investors lost, but the strength of the report, which follow a European parliament report which also demanded compensation, will see this tested.
Yet even if the government does decide to pay compensation, it will take its time, with no decision even in principle to be set before the Autumn.
Equitable chairman Vanni Treves said the Ombudsman's conclusions were damning.
He said: "From a policyholder point of view we think this is as formidable a report as the Ombudsman could possibly have produced.
"We could not really have asked for more. Her reasoning and recommendations are beyond argument."
The Ombudsman found the Government guilty of 10 charges of maladministration, with the report spanning Conservative and Labour governments in the decade to December 2001.
17 July 2008 © Moneyextra.com
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