Considered in Grand Committee
Moved by
That the Grand Committee do report to the House that it has considered the Age-Related Payments Regulations 2013.
Relevant document: 11th Report from the Joint Committee on Statutory Instruments.
My Lords, the draft regulations before the Committee today confirm the rules surrounding the proposed payments to holders of Equitable Life with-profits annuities which began before 1 September 1992.
This version of the regulations supersedes a previous draft which was debated in this House in July. As a result of that debate, a drafting error was identified in the regulations. The policy as announced by the Chancellor specified that a single payment would be made to each eligible policyholder regardless of the number of relevant policies they held. However, the previous draft allowed for multiple payments to be made to policyholders if they held multiple policies. The previous draft has now been withdrawn. I thank the noble Lord, Lord McKenzie, for identifying the error, and I apologise for our having made it in the first place. However, all policy decisions surrounding the regulations remain the same, and only technical changes have been made to the regulations.
I briefly remind the Committee of the background to the decision to make these payments. As noble Lords will be aware, this Government established the Equitable Life payment scheme in 2010 to make payments totalling up to £1.5 billion to about 1 million former Equitable Life policyholders who suffered financial losses as a result of government maladministration which occurred in the regulation of the Equitable Life Assurance Society.
Since the establishment of the scheme, the Government have received representations suggesting that a specific group of elderly policyholders who bought their with-profits annuity from Equitable Life before 1 September 1992 should be included within the scheme. The Government remain of the view that there is no basis for their inclusion. In short, this is because the scheme is based on the understanding that those investing with Equitable Life relied on regulatory returns that were subject to government maladministration. As such, they had lost the opportunity to make a fully informed decision. If they had had this opportunity, they might have invested elsewhere. The first returns that would have been different if maladministration had not occurred were those of 1991, which would not have influenced policyholders’ decisions until September 1992. Therefore, investment decisions made before this time are not included in the scheme.
It is clear, however, that this group of policyholders is under significant financial pressure in their later years, as they have not received the income that they planned for from their Equitable Life annuity that they bought more than 20 years ago. In this year’s Budget, the Chancellor announced that the Government would make an ex gratia payment of £5,000 to those individuals who bought an Equitable Life with-profits annuity before 1 September 1992 and were aged over 60 on 20 March 2013, the date of the Budget. An additional £5,000 is available to those policyholders who are also in receipt of pension credit.
I can reassure noble Lords that the revision of the regulations has not caused any delay to the planned timing of these payments. We appreciate that many of the pre-1992 with-profit annuity policyholders are very elderly and in financial hardship, so the Treasury intends these payments to be made soon after the parliamentary process has been completed. We are very grateful to the Prudential, which makes ongoing annuity payments to this group of policyholders, for its support in making these one-off payments.
In September, the Treasury wrote to all those who are expected to be eligible under these regulations to give more detail on the payments and to encourage people to check their pension credit status by 1 November with the Department for Work and Pensions. As a result, the Department for Work and Pensions has recently begun work to identify which pre-September 1992 annuitants are in receipt of pension credit. This will allow the payments due to them to be increased from £5,000 to £10,000 without the need for them to make any application. Under the regulations, we also have a provision that should an annuitant be eligible for pension credit on 1 November but is not on the DWP’s records for some reason on that date, they can apply directly to the Treasury for the additional £5,000 due to them.
As I explained on a previous occasion, should an eligible annuitant have passed away after the Budget announcement on 20 March 2013 before receiving their payment, this payment will be made to their estate. As these payments have a more complex administrative process, the Treasury has already begun the process of writing to the personal representatives of those deceased policyholders with details of how to apply for this payment. I hope that the Committee will join me in supporting the regulations.
My Lords, I thank the Minister for introducing the regulations, which engender a sense of déjà-vu. We note that the error in the original regulations has been corrected to ensure that only one payment of £5,000 is due regardless of the number of relevant with-profits annuity policies held by a qualifying annuitant.
Other than the possible delay in payment—I think that the Minister said that this re-run of the regulations would not mean a delay—it would seem that no individual has been disadvantaged by the re-run of the regulations. Perhaps the Minister will confirm that because I think that the same parameters operate for pre-1 September 1992 with-profits annuity policies; that is, that the individual should have been aged over 60 on 20 March 2013 and should have checked their pension credit status by 1 November 2013. If the re-run meant that payments were later than they otherwise would be, there could be a very narrow category of individuals who might have survived to receive pension credit but did not survive to receive the additional payment, but I do not think that that arises if there is no delay in the payments.
We went over some of the convoluted background to the Equitable Life saga. I do not propose to revisit it today as the Minister gave us a summary. Perhaps the Minister will clarify the status of our earlier debate. I cannot remember whether it was reported to the House or whether it just withered on the vine. I do not know whether the Minister has anything further to add to our exchanges on the tax profile of recipients. If he does, perhaps he can do that this afternoon.
When we discussed the defective regulations in July, the Minister announced that the Treasury had plans to accelerate the payments to the current financial year rather than 2014-15, and I think that it has been confirmed that that is still the plan today. For the most part, it is planned that the payment will be automatic, but there are circumstances in which an individual will have to apply, including when payment has not been received by 5 April 2014 and when a person is entitled to pension credit. However, it would seem that an application has to be made by 5 July 2014. What is the position if that deadline is missed? If, through no fault of the annuitant, payment is not made before 5 April, and an application by that annuitant is not made before the deadline, does entitlement cease? If that is a Treasury or Prudential mistake, it would seem a little harsh. Is there anything to stop the Treasury making payments after April 2014 without an application? How are those application requirements to be communicated to potential recipients, especially those overseas? The Minister mentioned a letter going to everyone in September, which is to be supported, but what will be the follow-up to that, if anything?
Incidentally, paragraph 7.6 of the Explanatory Memorandum says that payments will be made in the financial year 2013-14 “or earlier if possible”. Perhaps the Minister can tell us how it might be possible to pay them earlier than the current financial year.
It would seem that the administration of this payment scheme is to be separated from the administration of the Equitable Life payment scheme, which is just as well. Since we considered the earlier regulations, we have seen a report from the House of Commons Public Accounts Committee on the administration of the Equitable Life scheme. The involvement of Atos, which has been at the centre of a number of recent disasters, should certainly set alarm bells ringing. Will the Minister take the opportunity to comment on the recommendations made in that report, particularly around publicity for closure of that scheme and the extent to which policy holders have been traced? These have a potential read-across to the scheme that we are considering today. Subject to that, we would not seek to resist the regulations.
My Lords, I am very grateful to the noble Lord for his constructive comments on the scheme. I shall do my best to answer them, but there may be one or two things that I need to follow up on in writing.
I understand that no individual will be disadvantaged as a result of this slight delay because we have moved to write to people and to get the process in motion. On timing, the noble Lord raised the fascinating question of how many payments might be made before the current financial year. That is an extremely interesting question to which there is probably an obvious answer.
There are two things on which I may need to write. On applications, 5 July and whether that is a deadline, I think that it is but, if I am wrong, I shall write to him. By 5 July, given that people will have been contacted already, we would have expected them to have responded. The noble Lord asked a number of questions about the Equitable Life scheme, particularly on publicity around the closure of that scheme. I am not in a position to give a detailed answer to those questions now, but I will write to the noble Lord, and I hope I will set his mind at rest.
On the July 2014 date, if I understood what the Minister said, we could have a situation where the Treasury, based on the engagement of Prudential, has made an error in not making a payment to somebody yet the potential recipient has not applied within the deadline—between April and July is a fairly narrow period—and would cease to have any entitlement. Where the origin of the problem is an error by Prudential or the Treasury, that seems a little harsh.
Can I write to the noble Lord on that point and set his mind at rest?
I would be grateful for that.
Motion agreed.