EQUITABLE LIFE MEMBERS

Equitable Life Society and the Rectification Scheme (2003)

Nicolas J. Bellord

1.  Introduction.

This note is a purely personal comment by me on the revised Rectification Scheme.  It is written in good faith but it should be remembered that I am no longer in legal practice and it cannot therefore be relied upon as legal or other advice.  Nobody should place any reliance upon it and before acting, they would be well advised to take advice from a practising lawyer and/or an accountant.  I can take no responsibility in this matter.  I should also mention that I had about 25% of my funds in an Equitable Life (ELAS) Guaranteed Annuity Rate (GAR) policy and the remaining 75% in a non-GAR policy.  Further I took benefits under the original GAR rectification scheme.  I hope what I say is a fairly balanced view of the situation.

2.  The Hyman Litigation.

The Rectification Scheme arose out of the Hyman litigation.  Prior to the judgment of the House of Lords the Society had endeavoured to give members a fair share of the assets on the maturity of a policy by operating a differential terminal bonus policy (DTBP).  Under this scheme:

•          If a policyholder chose not to exercise his GAR rights under the policy he would get the full terminal non-guaranteed bonus to buy whatever other product he was entitled to buy.

OR

•     If a policyholder chose to exercise his GAR rights under the policy to have a certain annuity rate on his fund then his terminal non-guaranteed bonus would be reduced sufficiently to ensure that he could only buy an annuity at the same level that the full fund with all the terminal bonus would have bought using Current Annuity Rates (CAR).

When CAR fell below the relevant GAR rate then it was obvious that a GAR annuity could be very much more advantageous than a non-GAR or CAR one.

An added complication was that GAR rights under the policies were sometimes limited to a policy for the policyholders life and sometimes were not so limited.  In the case of a single-life GAR provision it was not so attractive to those with dependent spouses.

The House of Lords decided that Policyholders Reasonable Expectations (PRE) required that the full bonus should be paid regardless of what decision the policyholder made as to whether or not he would take up his GAR rights.  The failure to observe PRE was held to be a breach of contract.

It should be pointed out however that the PRE of the non-GARs was not considered by the Courts and this is a considerable bone of contention between GARs and non-GARs which remains unresolved.

3     The first Rectification Scheme.

The position after the House of Lords case was therefore that there were a number of policyholders who had taken benefits prior to the case and had the DTBP applied to them.  These policyholders could have applied to the Court for compensation on the grounds that at maturity they had been incorrectly informed of their rights.  Quite to what extent they could have done this I do not know.  CAR fell below GAR at about the time any limitation period would have applied so that possibly most policyholders could have complained successfully to the Courts or the Financial Ombudsman Service.  To prevent a multiplicity of claims of this nature ELAS put in place the first Rectification Scheme.  It should be noted that it was published in December 2000 about the same time as the Society closed for business.  It was therefore a product of the old Board and was probably drafted by their then Solicitors: Dentons.  However within a few months there was a new Board and new Solicitors who had the task of implementing it.

The Rectification Scheme was contained in an 8 page document with two pages of introduction followed by the Scheme setting out the terms in the form of a legal document.  It said that it was intended to deal with 3 groups:

•         Those who had taken a GAR annuity under DTBP and who had therefore got less than the full amount of the bonus and therefore needed to have their annuity increased.

•         Those who had opted for something other than a GAR policy as they had decided that the GAR annuity under DTBP was not attractive.  They were going to be given the opportunity to be switched out of their annuity into a GAR annuity with the full bonus.

•          Policyholders who had taken their money elsewhere instead of taking a GAR annuity subject to DTBP.  They were to be offered a supplementary GAR annuity to make up the difference.

The Scheme was endorsed by Mr Hairs - a senior Actuary - and by Lord Browne-Wilkinson a retired Law Lord. 

In case of dispute there was to be an independent assessor. (I have only ever heard of one person going to the independent assessor who was a Solicitor in the West Country – however ELAS withdrew the first Scheme before a decision was made).

More interestingly though at clause 24 it stated "If a Relevant Policyholder or any current policyholder should seek to challenge the principle of the Scheme, the Society may have to seek confirmation from the Court that the Scheme is appropriate".  It went on to say that if anyone did challenge it then the processing of cases would cease  and it would cause delay and uncertainty.  No doubt ELAS would have told any challenger that they were exposing themselves to a mammoth bill of legal costs if they did so.

It is to be seen therefore that the Scheme did not have the approval of the Court.  The format of the Scheme was therefore more what the Society wanted rather than what the Court would have done. 

A further point was that in making recompense new bonus rates were to be used.  When I learnt about this in early 2002 I commented as follows:

The interesting point is that the bonus rates from  1994  onwards

have  apparently  been  recalculated for this purpose so that the

scheme is NOT offering compensation based on "the full bonus plus

the GAR as required by the said judgment".

Clause 4 of the Rectification Scheme reads: "The House of  Lords'

judgment  required  the  Board  of the Society to re-exercise its

discretion as to the rate of final  bonuses  to  be  awarded  for

those  years  in  which final bonuses were awarded at differential

rates.  As was recognised in the House of  Lords,  in  exercising

such  discretion,  the  Board of the Society would not be able to

award final bonuses at the higher rate previously made  available

on  GAR  policies  where  benefits  were taken at current annuity

rates.   There  is  only  one  with  profits  fund,  and  if  GAR

policyholders  are  to  receive  the  same level of final bonuses

irrespective of the form in which benefits are taken, instead  of

higher  or  lower  final  bonuses  depending on the form in which

benefits  are  taken,  then  the  resultant  final   bonus   will

necessarily be set at a level somewhere between the two."

Now I can find nothing in the judgment of the HofL to justify the

above.   In  their  Originating  Summons[1]  ELAS  asked for various

declarations and there were alternatives the third of which might

have  provided the basis of what ELAS are now doing.  However the

final words of Lord Steyn were "Given the terms of this  judgment

I  do not consider that any declaratory relief need be granted by

this House".  So presumably there is no declaratory order?

At first sight therefore the new bonus resolutions do not appear to have been required by the Court as ELAS claimed.  I wrote to them asking about this in the summer of 2000 but never had a proper reply on this point.  In my view therefore the new bonus resolutions and certainly the Scheme did not have the approval of the Court.  However as I have said above to challenge the Scheme in the Courts would require a very deep pocket indeed.

Further one would have to consider the fact that it might be deemed that what they did by making the new Bonus Resolutions was only fair.  If the Society had known that the DTBP was illegal and that they would have to pay out the full bonuses, regardless what product the policyholder chose, then they would have declared lower bonuses in order to provide for their having to pay a full bonus and a GAR to a policyholder who chose accordingly.  It is ironic that according to the Penrose Report bonus rates were never set with an eye to prospective liabilities but entirely for marketing reasons to try and keep ahead of all other companies and thereby attract in more money.  ELAS may be using a supreme example of hindsight but they could argue that their previous bonus policy was in fact benefitting the GARs as it was getting in new non-GAR money which could be used to support the GARs.

It would therefore seem that any challenge to the New Bonus Resolutions in the Courts would risk a very heavy bill of costs (millions?) and also might be defeated on the grounds of fairness.  Complaints to the FSA or the FOS might avoid the costs risk but would not avoid the fairness argument.  Further the motivation and independence of the FSA and the FOS are unfathomable factors!  There is however a worse danger in that if such a challenge was made the non-GARs might wake up and ask to be heard particularly on the question of PRE and thereby manage to re-open the ring-fencing issue.  If the non-GARs were ever allowed to have their funds ring-fenced against the GARs the result might be the disappearance of all bonuses and cuts in present GAR annuities.  I have no figures to support this but you should bear in mind that 75% of the WP fund was non-GAR money and that the relevant figures are just not available as even the latest accounts hide this kind of information.

4.  The New Rectification Scheme (2003)

At some point it was announced that the first Rectification Scheme was being abandoned and a new one was introduced.  Uniquely for ELAS the documentation does not appear to have a date except 2003.

4.1. Differences from the first Rectification Scheme

This is a completely new scheme.  It is not an amendment to the old scheme.  It is not written out in the formal legal way the first scheme was but presumably one can rely on the exact wording of the document.  It claims to be governed by principles of simplicity, speed and fairness (not characteristics one usually associates with ELAS!).

Again it has not been approved by the Court but this time it has not been approved by any eminent  person such as Mr Hairs and Lord Browne-Wilkinson.  The independent assessor has disappeared and ELAS will deal with any complaints themselves and if that does not resolve the problem then you are referred to the Financial Ombudsman Service (FOS).  They do however say: 'Although the scheme is not regulated by the Financial Services Authority (FSA), we have developed it in discussion with the FSA and we have taken account of their comments and suggestions.  The FSA have confirmed that they do not object to the scheme as it stands'.   

This sounds a bit convoluted.  Surely ELAS is regulated by the FSA but I suppose they would argue that not all their activities are so regulated.  I have not investigated that point but perhaps it is a point they are making so that you cannot complain about the form of the Scheme to the FSA.  Hands up anyone who knows of anything the FSA has objected to in regard to ELAS? 

There are then differences of detail which I will come to later.

4.2. Reasons given for Differences from first Rectification Scheme

The document says of the first scheme that it 'proved very complicated and time-consuming because of the large range of factors we needed to consider to assess each case.  The scheme also gave GAR policyholders the opportunity to replace the product they chose when they retired with a GAR annuity'.  This means that the 2^nd Group under the first Rectification Scheme were going to be handled differently.   I will come back to this.  They go on to say 'This was unfair because it allowed those who bought Managed Pensions and with-profits annuities to change the investment decision they took when they retired because they had the benefit of hindsight'.

4.3. A closer look at the  Differences from the first Rectification Scheme.

As mentioned above the first scheme divided policyholders into 3 groups.  In the new scheme there are effectively 5 categories as they have divided the old 2^nd group into three new groups.  I intend to examine these one at a time and name the five categories 1, 2A, 2B, 2C and 3.  There is however a major problem in interpreting the new scheme. Instead of writing the Scheme out in legal language in numbered clauses it has been written out in what is supposed to be user-friendly language and has the Crystal Mark for Clarity approved by the Plain English Campaign.  This is a snare and a delusion.   The problem is that the Scheme is described on page 5 under 'HOW THE SCHEME WORKS' and then again in more detail on page 6  under the heading OFFERS UNDER THE SCHEME'.  Marrying the two descriptions together and working out what applies to what is a nightmare!

4.3.1.  Category 1 - Relevant Policyholders who took a Pension with ELAS as either a GAR annuity or a GAR-Like Annuity.

This is the same as group 1 under the First Rectification Scheme (governed by clause 15 of that scheme) except that it adds in those who took a 'GAR-Like Annuity'.  A   GAR-Like Annuity is defined in the DEFINITIONS on page 2 as 'an annuity based on current annuity rates where the same annuity could have been provided on GARs.'  This is not a very clear definition.  I take it to mean that it is an annuity which has been bought with a fund at Current Annuity Rates (CARs) where in fact you had the right to buy a GAR annuity at the appropriate GAR rate.  Another interpretation might be that 'same annuity' might mean that the payments are equal but the funds different as since 1994 it is cheaper to buy an annuity at a certain rate using a GAR than using CAR.   For the purpose of this paper I am sticking with the first interpretation.

 In essence there is no change from the earlier scheme in that you will be offered an increase in your GAR annuity to take account of the amount you lost by reason of the DTBP being applied.  However there are important differences:

            a.  Under the first scheme it was possible to commute the whole or part of the Increase for a cash lump sum provided that Inland Revenue requirements are not breached as a result.  I cannot see any provision for this in the new scheme.  It strikes me as being quite unfair that this has been withdrawn.  If you had been offered the full bonuses on maturity you would generally have been allowed to take 25% in cash.  Effectively you are being offered the missing bonuses but are not being allowed to take 25% in cash.  This may make for simplicity and speed but you are going to pay for it.  Indeed I wonder whether this is legal.  It might be worth asking for 25% in cash and seeing what ELAS’s response is.

            b.  Page 5 states in the last para 'If your existing annuity includes a pension for your surviving husband or wife (spouse), the extra amount of annuity will also include this spouse's pension using the same percentage that you chose for your existing annuity.'  Now again flexibility is being sacrificed to  simplicity and speed.  If you had the bigger fund to play with on retirement you might well have varied the proportion going to your spouse by giving her either a smaller or larger share depending upon circumstances.  Why should this now be denied to you?

            c.  The same para goes on to say 'If the policy did not provide a GAR for a spouse's pension, we will provide their pension at the rate which was available on your retirement date'.  That is to say at the lower or CAR rate.  Again why should you be denied this flexibility?  Faced with a GAR maturity which had no provision for a spouse at the GAR rate you might have been forced to take a pension for your wife at  the lower CAR rate.  If the fund had been bigger you might have thought it proper at the time of maturity to give your spouse a smaller proportion - the extra money on the GAR portion could then have been saved to make up the difference.

            I might mention that it is not clear that this last paragraph on page 5 dealt with under C & D above does apply to Group 1 but I think it must.

            d.  (And this is a real innovation).  At the top of page 6 there is a paragraph headed 'OTHER WITH-PROFITS POLICIES'.  This says that if the New Bonus Resolutions were to be applied to any other policies you held then it would appear that you received excessive bonuses and ELAS now intend to claw these back.   In the first scheme the eminent actuary Mr Hairs wrote I consider it to be sound and fair to refrain from clawing back any excess benefits from policyholders who would find themselves worse off under the New Bonus Resolutions as the Society is presently minded to do.

            I am not sure what is meant by the words:   as the Society is presently minded to do.  Were they intending to claw them back at the time the first Scheme was being prepared and Mr Hairs warned them off this?  Perhaps this explains why no eminent person has been invited to vet the new Scheme?

            Further in a letter to me from ELAS dated 14^th May 2002 they wrote:

 'For Guaranteed Annuity Rate (GAR) policyholders who will be reviewed under the Rectification Scheme, the full fund to be used in our calculations will be based on the revised final bonus calculated in accordance with the New Bonus Resolutions.  This aspect of the scheme was specifically considered by the eminent experts who endorsed the scheme.  Non-GAR policyholders who took their benefits prior to 20 July 2000 have mistakenly been paid too much.  Legally the Society would be entitled to attempt to recover the excess benefits paid or reduce future benefits and could be held to be in breach of duty for failing to do so.

The Society has taken legal advice on this issue.  There are a number of legal grounds on which policyholders might successfully oppose or challenge an attempt by the Society to recover excess benefits or reduce further benefits.  Furthermore, there would be significant commercial disadvantages (even ignoring the sizeable costs of instituting extensive legal proceedings) to such an attempt in terms of the adverse publicity it would undoubtedly generate and consequent damage to the Society's goodwill.  It is within the Directors' discretion to weight the commercial disadvantages and legal risks of such a course of action against the possibility of recovering some benefits and they have concluded that it is not in the Society's best interests to pursue such an approach'.

The reference to Non-Gars having taken too much may seem a bit strange.  If the New Bonus Resolutions were applicable then anyone who got the full bonuses whether GAR or non-GAR got too much.  However in the case of a GAR policyholder having got too much then the extra is being clawed back anyway by the New Bonus Resolutions.  In the case of a non-GAR the New Bonus Resolutions were not being applied for all and every non-GAR policyholder.  ELAS seems to have recognised at the time that this would have been difficult to do, not least for legal reasons.  As mentioned above the non-GARs if taken to court on this would have had a good case to put on the grounds that they were not properly represented in the House of Lords case.   Further they must have thought that if they were going to reduce the non-GARs bonuses they would have to do it for all non-GARs not just those who happened to have a GAR policy requiring rectification.

ELAS seem to have changed their mind on this.  Commercial advantage or disadvantage and goodwill are now things of the past with no value for ELAS.  Fairness is of course a fiction where ELAS is concerned.  They presumably now think that in the case of the GAR policyholder entitled to rectification, who also has or had a non-GAR policy, that they can effectively reduce the bonuses on the non-GAR policy by knocking it off the compensation on the GAR policy.  They can do this without taking the policyholder to Court so the legal risks are minimised.    It seems to me though that any policyholder affected in this way could take ELAS to court.  Somebody entitled to legal aid or where the sum involved is under £5,000(?) could claim in the County Court perhaps or even the Small Claims Court.  I am not versed in this area at all but it might be worth exploring.

In summary I would say the changes for this category are that for a, b & c the scheme has been made simpler but with the loss of much flexibility.  However d introduces greater complexity and a distinct loss of fairness.  The real motivation must be to make it cheaper for ELAS rather than to benefit the policyholders.

4.3.2.  Category 2A - Relevant Policyholders who took a non-profit annuity with ELAS that is not  a GAR annuity or a GAR-Like Annuity.

By a non-profit annuity they mean a traditional guaranteed annuity where the payments were fixed or increased in line with the Retail Price Index or some other fixed rate.  These fell into the 2^nd Group in the First Scheme and was governed by clause 16 of that scheme.  Under the first scheme the policyholder had the right to convert whatever annuity he had taken with the Society to a GAR annuity with the total bonuses as recalculated by the New Bonus Resolutions.  He was allowed to commute up to 25% of the total sum (not just the extra money awarded) for cash if permitted by the Inland Revenue and he could make any other election available under the GAR policy.  Thus the policyholder was offered a great deal of flexibility and it was simple to understand.  I will now try and fathom the new 'simpler' offer.

Essentially you are being left with the non-profit annuity that you originally bought from ELAS but you will be offered an additional annuity.  It is the calculation of the amount of this additional annuity that is complex.   Page 6 at the bottom of the first column says:

'We will work out the additional annuity by comparing the value at retirement of the GAR annuity that should have been available to you (with a fund where we used the new final bonuses) to the value at retirement of the annuity you bought (with a fund where we used the higher differential final bonus)'. 

Unfortunately this only takes us so far.  They are saying they are going to work out what you should have been offered at maturity to include the full bonuses as reduced by the New Bonus Resolutions (call that X) with the fund you used to buy the annuity you have which would have included the full bonuses NOT reduced by the New Bonus Resolutions (call that Y).  Now it seems inevitable that Y is always going to be greater than X as X = Y - New Bonus Resolutions adjustment.  But what happens next?  I think you have to turn back to page 5 under 'HOW THE SCHEME WORKS' and the numbered clauses 1 to 5 to find out.  Taking these clauses one at a time:

1      This calls for X to be calculated i.e. the fund with full bonuses less New Bonus Resolutions adjustment.

2      This clause talks about a GAR-like annuity the ambiguous definition of which I discussed above at 4.3.1.   There I said my interpretation of it was that it was a CAR annuity which was bought with a fund which could have been used to buy a GAR annuity.   This clause says that ELAS will compare this GAR-like annuity with the GAR policy you could have purchased with X.

3      This clause further defines the GAR-like annuity as being one you could have purchased with Y being the fund with full bonuses NOT reduced by the New Bonus Resolutions. 

4      If the GAR annuity purchased with X is more valuable than the GAR-like annuity you could have purchased with Y then you will be entitled to compensation to make up the difference.

5      The compensation will come in the form of a supplementary annuity to be paid by ELAS or another provider.

In summary the situation is not that complicated.  You are going to get a supplementary annuity to make your income up to the level you could have purchased with the full bonuses you should have been offered as reduced by the New Bonus Resolutions.  However there are some vital difference from the old scheme:

            a.  You are stuck with the original annuity you bought whether it is at a flat rate, RPI adjusted or increasing and whether it has provision for your spouse or not.

            b.  The new annuity will have identical spouse provision as in the original annuity and you cannot vary this.  This is particularly disadvantageous where the GAR policy had no provision for spouse provision.  The reason is that when calculating under clause (4) above the spouse part of the annuity will be calculated at the CAR rate rather than the GAR rate.  Under the First Scheme one was able to decide not to have spouse provision.  In one case it meant that instead of receiving £1,000 p.a. for the first life and £500 for the spouse after his death it meant receiving £2,000 for the first life alone.  The policyholder decided that the difference was so great that he was justified in going for a single life policy.

            c.  It is not clear whether the new annuity will be RPI linked or increasing if the original annuity was.  It will probably be the same but there is certainly no provision for changing this.

            d.  There is then the catch about having or having had other policies with ELAS which I described under d above in 4.3.1 on page 6.

            e.  It may be that the supplementary annuity will be with a different provider although this is not entirely clear as page 6 talks of 'an increase to future payments of your existing annuity'.  It may be in this case that it will stay with ELAS.  However if a different provider is nominated it is not clear whether you have any control over the choice of another provider.  This could be important.  It has become abundantly clear that insurance companies are not the solid pillars we all assumed them to be and with our provenly incompetent regulators I would not want to be put with any old company.  I would want assurance that the annuity is properly backed with Government gilt-edge investments at the very least.  One might be happy getting away from ELAS but out of the frying pan into the proverbial fire?

So again with differences a, b & c flexibility has been sacrificed for simplicity and d introduces more complexity.  e is a new one where you need to consider who the new provider is.

There is a further major catch whereby ELAS may decide 'that your circumstances make it unlikely that you would have taken a GAR annuity had you known its value' in which case they will not pay any compensation.  They might, for instance, argue that because there was no spouse provision in the original GAR policy, and you had a spouse you would not have taken the GAR policy.  You may need to be prepared to counter this kind of argument by explaining that you had other means to support your wife such as her own pension or a second property which would be sold on the death of yourself etc.  This catch did exist in the First Scheme at 17(b).  The question of hindsight enters into this and I will deal with hindsight in the next category.

4.3.3.  Category 2B - Relevant Policyholders who took a with-profit annuity with ELAS.

Like Category 2A above this originally fell within the 2^nd Group in the First Scheme and was governed by clause 16 of that scheme.   As those with WP annuities will know only too well they have proved to be a disastrous product.  Under the First Scheme it would have been possible to surrender your WP annuity and get a GAR annuity.  Under the new scheme you will just get a supplementary annuity to be calculated in exactly the same way as the extra payments to be paid as described above in Category 2A.  The additional annuity will be a non-profit traditional guaranteed annuity.

I regard this change as being a major change which is very unfair.  It is all very well to talk about making decisions 'because they had the benefit of hindsight (see BACKGROUND on page 2 right hand col 2^nd para of the new Scheme).  'Hindsight' is a word that is bandied about a bit too easily.  If you are not to use hindsight historians would be out of a job including Lord Penrose and any judge.  In this context 'hindsight' should be used to refer only to events that occurred after the choice of an annuity.  Thus if you took out an annuity with a spouse provision and your spouse died shortly thereafter it would be using hindsight to say that you would in fact have taken out a single life annuity.  You would be using hindsight about an event that occurred after choosing the annuity which you could not have foresawn with any certainty.  However in this case the events in question are that the DTBP was illegal and there were a number of facts about the WP annuity which were known to ELAS but not disclosed to you - such as the fact of the non-existence of assets to back the non-guaranteed bonuses that were being declared.  These are events that happened before you chose your annuity.  If you had known them at the time you would have undoubtedly chosen differently and it cannot be said you are now using 'hindsight' to claim now that having discovered the facts you would have chosen differently. 

My feeling is that this is a major issue and that anyone finding themselves in this category should think very hard about accepting the offer.  It might be better to take it to  FOS.  You would be well advised to take further advice.

Otherwise the same differences exist between the new Scheme and the first scheme as I have given about for Category 2A and the same comments apply. 

4.3.4  Category 2C - Relevant Policyholders who took a Managed Pension with ELAS when they retired.

Like Categories 2A & 2B above this originally fell within the 2^nd Group in the First Scheme and was governed by clause 16 of that scheme.   Here we are told that 'we will assess your case under the scheme at the same time it is assessed under the Managed Pension Review'.  Although this is supposed to be completed by the end of 2004 so far I have not heard of any cases being dealt with under that review. However it would seem that such a case is to be dealt with both under the Managed Pension AND this new Scheme and maybe it is going to be dealt with in the same way as Category 2B i.e. very unfairly.  Fortunately you do not have to make a decision now but I do suggest that anyone in this category thinks very hard about it and takes appropriate advice.

4.3.5.  Category 3 - Relevant Policyholders who transferred their benefits to another provider when they retired.

This situation fell within the 3^rd Group in the First Scheme and was governed by Clause 17.  Here because the policyholder had gone to another company it would obviously not be possible to unravel whatever they had done with that company.  Therefore a supplementary annuity was proposed based upon the extra amount he would have got if he had been awarded the full bonuses as adjusted by the New Bonus Resolutions.  There was flexibility in that one could get a cash commutation to the extent allowed by the Inland Revenue and you could make any other choice available under the original GAR policy such as varying the spouse provision.  Again though there was a clause requiring you to satisfy ELAS that you were not using hindsight. 

Under the new scheme you will be asked to fill in a questionnaire and provide information (see top left of page 7).  ELAS will then decide whether it is likely you would have chosen a GAR annuity.  I suspect they are going to make this a much harder hoop to get through than previously.  If you do get through, it then you will get a supplementary annuity to be calculated as for Category 2A above except that they say 'if you received a better annuity rate than we offered you, we will reduce the compensation due to you in line with this'.  This means they will use the higher of the GAR-like annuity (based on CAR) and the annuity you got.

It will have the same lack of flexibility i.e. no cash commutation and spouse provision in line with your annuity which you bought with a different provider.

4.4 Some minor points.

4.3.4 Under the first Scheme if you had taken part of the benefits in cash you were entitled to go back and use this cash to buy a GAR annuity. This does not seem to feature in the new scheme.

4.3.5 There is provision for the payments that have already fallen due to be paid to you as a lump sum together with interest.  All of this is taxable in the year you receive it.  This might put you into a higher tax rate for that year and it seems to me that you would then be able to claim that ELAS should make allowance for this.

4.3.6  You only have 28 days in which to accept the offer.  This is a very short period for making such an important and difficult decision especially if you are having to seek advice.  Ask ELAS if they are prepared to extend the time limit.

4.5 The Acceptance Form.

In the acceptance form you have to sign away claims you have against the Society in respect of the Policies listed.  You not only sign away claims in respect of the DTBP but also any other form of claim in respect of these policies.  There is an ambiguity in the form of wording which you need to take notice of in that it could be interpreted as covering all your policies.  With regard to Rectification one has to remember that there are at least 2 policies involved. First of all there would have been the policy which matured before the House of Lords judgment and secondly the new policy which was taken out using the proceeds of the first policy. 

The first policy had GAR rights and it is in respect of that policy that the Rectification is being made.  As that policy matured before the House of Lords judgment in July 2000:

1.  The Differential Terminal Bonus Policy (DTBP) would have been applied.

2.  It is not caught by the Compromise in early 2002 as it was no longer subsisting at the date of the compromise.

The second policy in the case of ELTA members would be a WP annuity policy which was subsisting at the time of the compromise and is therefore caught by the terms of the compromise.  Holders of these policies cannot make any claim against ELAS in respect of that policy in relation to any GAR related claim.  A GAR related claim includes  anything to do with GAR rights, the existence thereof and also the DTBP.

The essential point to grasp is that the rights attach to each policy and not to each policyholder.  The important thing is to make sure the Acceptance Form relates only to the first policy.  Make sure that only the number of the policies that matured prior to the House of Lords judgment appears at the top; that is to say the first type of policy. The problem then is the form of wording of the Acceptance Form which might be deemed to be ambiguous in that it might apply not only to claims arising out of the first policy but ALL CLAIMS attaching to any policy e.g. the second policy being the WP annuity policy.  Therefore I would suggest that when returning the Acceptance Form signed the  policyholder should put in the covering letter the following:

'To avoid any doubt I have signed the enclosed Acceptance Form on the basis that it only relates  to claims arising under the policy number(s) appearing at the top and it does not relate to any claim I may have under any other policy which I have or had with the Equitable Life Assurance Society'

The policyholder should make sure they keep a copy of the acceptance form and the  covering letter containing the above statement.

Now I would say that this only affects those who think they may have another separate claim against ELAS.  I am aware that others think that I am being over-cautious about the meaning of the letter of acceptance.  All I am doing is drawing the reader’s attention to a potential problem and it is a point upon which you would be well-advised to get separate advice from a practising lawyer.

Further some may want to get further time from ELAS to consider the offer.  You can ask them for this and if granted make sure you have it in writing from them that the period of the offer is extended.

5.  Conclusions.

ELAS claims that it is has been guided by principles of Simplicity, Speed and Fairness.  My suspicion is that ELAS is facing a very big solvency problem.  The accounts for 2004 have to be drawn up on a 'realistic' basis for the first time.  I do not know whether this basis has been finally determined by the FSA and to what extent it will be another fudge.  However the understanding is that they will have to make some gesture towards providing for PRE (Policyholders Reasonable Expectations) as has been required by statute since 1972 but quietly ignored.  This means putting in some sort of provision for non-guaranteed bonuses.  Besides this new provision they also have to provide for claims under the Rectification Scheme and the Managed Pension Review in addition to any claims being made against them through the FOS and the Courts.  My guess is that there is going to be great difficulty in showing real and/or regulatory solvency at the end of this year on this new basis.  There has therefore been a great incentive to try and clear up all the claims under the  Rectification Scheme and the Managed Pension Review by the 31^st December 2004 so as to be able to put in the lowest possible provision for these items.  This is the real motivation for this new scheme - to get rid of the claims as swiftly and cheaply as possible.  Fairness does not come into it.  Those who benefitted under the First Scheme have probably all done better than they would under the new scheme.  Where is the fairness there?  As for the non-GARs I doubt if any of them would agree that any of this is fair!

What should you do?  Well if I was in Categories 1 or 2A I would be inclined to accept it.  If I was in Category 2B I would definitely seek further advice.  If I was in Category 2C I would wait and see what happens with the Managed Pension Review.  If I was in Category 3 I would fill in the questionnaire and see what they offer.  There is the problem with the acceptance form and if you have any doubts about that seek advice. In all cases make sure it only applies to the old GAR policies and put the note I have suggested in the covering letter.  Again if you have or had other ELAS policies watch out for any attempt to claw back the bonuses on them and think hard before accepting that.  Ask whether you can have 25% of the compensation in cash.

It may be that in rejecting an offer and going to FOS in the end you will not get less than is being offered now - but that is just my unfounded supposition.

6.  A Final Note

As I said at the start I am a retired lawyer, long out of date and talking about an area of law about which I know little.  I write this voluntarily just to help fellow sufferers and because I think there are very important principles at stake.  Please therefore accept this as just my musings and not advice.  You must seek advice elsewhere and I must disclaim all and any responsibility and ask you not to act relying upon my musings.  Remember that ELAS has failed you, the Regulators have failed you and the Law has failed you.  Whatever the justice of any grievance you may have you have to face the fact that ELAS can employ the best lawyers to defeat any claim you make using the large amounts of money (your money) which they have at their disposal.  They can threaten you with enormous bills of costs - however slim the chances of your not winning a court action it is not a risk that any sane person can take.  Behind them they have the Regulators, the Treasury and the Government who want to avoid picking up any tab at any cost.  All of this is a result of incompetence and moral decadence.  But do not let this discourage you: it is a political battle - complain to the FOS, complain to your MP, complain to the Press and do not give up!