The Parliamentary Ombudsman has criticised the plans for compensation for those affected by the near collapse of Equitable Life.
Last week, Sir John Chadwick published his final report into the affair and suggested that compensation payments were likely to total around £400 million to £500 million. Despite finding that the total loss suffered by policyholders was somewhere between £2.9 billion and £3.7 billion, the report proposed that compensation should be capped at 20% to 25% of that amount.
Given that around one million people were affected, compensation could be as low as £400 per person.
Responding to the report, Ann Abraham, the UK Parliamentary Ombudsman, said the proposals appeared to be 'an unsafe and unsound basis on which to proceed'.
In a letter to all Members of Parliament, she continued: "It seems to me that those proposals, if acted upon, would not in any sense enable fair and transparent compensation to be delivered."
Describing the report's terms of reference as no longer relevant to the Government's commitment to implement her recommendation, she added: "In studying the Chadwick report I have noted that it misinterprets central parts of the conclusions outlined in my July 2008 report and has ignored others.
"I find these flaws particularly concerning, providing as they do the basis for some of the central and more controversial proposals within the Chadwick report."
Savers who lost out as a result of the insurer's problems have been told they can expect to receive some compensation next year. An independent commission has been put together to advise how to best allocate payments to policyholders. The proposals put forward in Sir John's report, while not binding, give some indication as to the level of compensation that Equitable Life customers can expect to receive. It was also confirmed that compensation will not be means tested and that monies would be passed on to a policyholder's estate if they have passed away.
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