A report from the National Audit Office has revealed the UK government’s rushed response to the Equitable Life collapse could leave up to a fifth of policyholders without compensation, while administration costs are likely to go heavily over budget.
A report published today from the NAO estimates that although £577m worth of payments had been made by the end of March 2013, this represents less than half of the total payments due. Specifically, the government has made 407,000 payments and has 664,187 left to make.
The report adds that because of incomplete or out-of-date policyholder data provided by Equitable Life, between 17 and 20 per cent of policyholders will not be found despite efforts to trace them.
The report also found that the administration budget for the scheme was around two-thirds spent, meaning that it is likely to go substantially over-budget, particularly as finding remaining policyholders is likely to be more resource intensive.
The government has claimed that early groundwork means it will only spend a little more than planned and that it will miss its budget by around £1.5m.
Last year the government published a statement suggesting that the redress scheme was back on track after earlier difficulties, saying it had paid out a third of its fund within a commensurate timeframe after missing earlier redress deadlines.
Amyas Morse, head of the NAO, said: “Previous NAO work on government compensation schemes has shown that they can be difficult to set up and administer. In the case of Equitable Life, the government failed to take on board the lessons.
“Not enough preparation was done in the short lead up to the scheme and problems emerging from poor data caused delays.
“They now need to produce a realistic plan indicating how and by when they will make the remaining, more difficult payments.”
Margaret Hodge, chair of the government’s Public Accounts Committee, said: “The scheme to repay just over a million former Equitable Life policy holders by April 2014 has gone off track and will not pay everyone who is owed.
“The desperate rush to start making payments by June 2011 meant the administrator, NS&I, tried to run before it could walk. As a result there have been mistakes and delays.”
She added: “Given this, it seems naively optimistic that the Treasury is predicting it will spend only £1.5m more than planned.”
