More details have emerged regarding the compensation payments for Equitable Life policyholders following yesterday's comprehensive spending review.
Chancellor George Osborne told the House of Commons that compensation payments amounting to £1.5 billion had been put aside for those savers who lost money through the near collapse of Equitable Life almost 10 years ago.
The Treasury has since confirmed that payments will begin next year, with £1 billion earmarked to be paid out upfront over the next three years. It said that the final figure was more than four times that which Sir John Chadwick, who led a review into the debacle, had proposed. However, it falls well short of the £5 billion that Equitable Life campaigners had been calling for.
The Treasury said the payments 'must deliver fairness to taxpayers as well as policyholders - particularly in light of the challenging economic circumstances'. It explained that the figure was based on the relative losses suffered by policyholders, which amounted to £4.3 billion, and consideration of the proportion of this figure the Government felt it was fair to ask taxpayers to pay.
However, special dispensation has been made for with profits annuity policyholders who the Treasury said had effectively been 'trapped' and were particularly vulnerable to losses, through being unable to move their funds elsewhere.
With more than half of these losses being suffered by those over the age of 75, the Government decided that a fair balance would be achieved by covering the full cost of their relative losses.
As a result, around 37,000 such savers, who suffered an average loss of £16,500, will be paid regular annual payments for their lifetime to effectively replace the income stream that they lost.
"We shall be paying in full the category of policyholders who suffered most from their losses," said Financial Secretary to the Treasury, Mark Hoban MP.
"For other policyholders, we shall be providing a level of funding for the payment scheme that strikes a fair balance between the interests of policyholders and those of taxpayers in the current difficult financial circumstances.
"We need to continue the rapid progress that we have made in just five months so we can meet our aspiration to make the first payments by the middle of next year."
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