Commons Briefing paper by Stephanie Cunningham. It was first published on Friday, 18 September 2026. It was last updated on Thursday, 24 September 2026.

Compensation for Equitable Life policyholders

In 2010, the government set up a compensation scheme for people who lost money because of the financial practices of the life insurance firm Equitable Life and the failure of regulators to address them. There has been an ongoing campaign for the government to increase the amount of compensation available.

Background to the Equitable Life controversy

Equitable Life was a large UK life insurance firm that sold pension products. These included annuities and policies with guaranteed annuity rates.

When market conditions changed in the 1990s, these policies ultimately became too expensive for Equitable Life to fulfil, and it ran into financial trouble. After its attempts to manage the increasing costs were deemed unlawful and Equitable was left with a £1.5 billion liability, it closed to new business. Over the next few years, parts of the business were sold off and policyholders found that their policies would pay out significantly less than expected.

Several inquiries were held and the Parliamentary Ombudsman ultimately found several instances of maladministration on the part of prudential regulators. The government set up a compensation scheme to provide £1.5 billion in compensation for those affected, though the relative losses amounted to £4.1 billion in total. An ongoing campaign has called for the government to re-evaluate the amount set aside for compensation.

What are guaranteed annuity rate policies?

Annuities allow people to convert their pension savings pots into guaranteed regular income. When someone purchases an annuity with their pension pot, the provider will consider various factors to determine the rate of the annuity, which then determines how much income the annuity will pay. These factors include the person’s health and lifestyle as well as external factors such as interest rates, inflation and market competition.

When a provider sells an annuity policy with a guaranteed annuity rate, the provider guarantees the rate which will be used to convert the pension pot into an income once the member reaches retirement age. This means the rate will apply regardless of market annuity rates at the time the member actually converts their pot into an annuity.

Equitable Life guaranteed annuity rate policies

Equitable Life had sold policies with guaranteed annuity rates between the 1950s and late 1980s. These policies contributed to the financial difficulties it experienced in the 1990s and early 2000s.

Many of the guaranteed annuity rates Equitable sold between the 1950s and 1980s were linked to “with-profit annuity” policies. Under such policies, before the pension saving pot is exchanged for an annuity, the pot is invested in the firm’s pooled investment fund. Annual bonuses are paid to the member based on the profit made by the fund. When the member’s policy reaches maturity, and the pot is exchanged for an annuity, the member may also be paid a final bonus.

In the 1990s, interest rates and inflation made it more expensive for Equitable to pay out on these policies. To manage the costs, Equitable started offering “differential terminal bonus rates” to with-profit annuity customers with guaranteed annuity rates. This meant that if a member opted to receive their annuity at the current market rate (which was lower than what was promised under the guaranteed annuity rate policy), they would receive a larger bonus. Members who opted to take their annuity at the guaranteed rate would receive a lower final bonus.

Legal challenge to final bonus policy 1999-2000

After a legal challenge, the High Court declared that the final bonus policy was lawful in September 1999; but the Court of Appeal reversed this decision in January 2000. The House of Lords upheld the Court of Appeal’s decision in July 2001. The judgment resulted in a £1.5 billion liability for Equitable.

Equitable remained solvent but after failing to find a buyer, it closed to new business in December 2000. In the following years different parts of the business were sold off to pay the policyholders, who also found that their policies were paying out less than they expected.

Parliamentary Ombudsman report and recommendations for compensation

Following an initial report published in 2003, the Parliamentary Ombudsman reopened the investigation into Equitable Life in July 2004. The final report was published in July 2008. The report found “serial regulatory failure” on behalf of prudential regulators, the government bodies that regulate these kinds of financial services. It recommended that the government should establish a compensation scheme for those affected:

My first recommendation is that, in recognition of the justifiable sense of outrage that those who have complained to me feel about the maladministration in the form of the serial regulatory failure that I have identified in this report, the public bodies should apologise to those people for that failure.

My second– and central– recommendation is that the Government should establish and fund a compensation scheme, with a view to assessing the individual cases of those who have been affected by the events covered in this report and providing appropriate compensation.

The Parliamentary and Health Service Ombudsman, Equitable Life: a decade of regulatory failure fourth report session 2007 to 2008, p41

Compensation scheme

The government accepted the ombudsman’s findings of maladministration and said it would set up a compensation scheme for policyholders. As this was during the 2007/08 financial crisis, it said the scheme have to consider the position of public finances and fairness to taxpayers. The scheme was set up in 2010 to make payments to eligible policyholders who had a suffered a ‘relative loss’ (meaning the policyholder would receive less under their Equitable Life policy than they would have if they had invested with a different company).

The government calculated that around 1 million policyholders were eligible for a payment from the scheme and calculated their relative losses at £4.1 billion. However, due to pressures on the public finances and the need to balance fairness between the policyholders and taxpayers, the government decided to make £1.5 billion available for payments under the scheme. This was in line with the Parliamentary Ombudsman’s recommendation that the government should consider the potential impact on the public purse when setting the level of compensation (ombudsman’s report, p42).

The government decided to use this £1.5 billion to cover the relative losses of those with with-profit annuities in full, on the basis that they were most vulnerable group. Any funding not used up in compensating this group was then split between other policyholders with relative losses. Further information on how the compensation fund was allocated is provided in the 2016 HM Treasury report:

The government then considered how the allocated funding should be distributed to policyholders. In line with the many representations HM Treasury received, the decision was taken to cover the relative losses of With-Profits Annuitants in full on the basis that they were the most vulnerable group. This left around £775 million for those who had invested in savings products such as bonds and pensions (known as non-With-Profits Annuitant policyholders, or non-WPAs), who had suffered total relative losses of around £3.5 billion.

To determine how best to allocate this money, the Independent Commission on Equitable Life Payments recommended that non-WPAs should receive a pro rata allocation of these remaining funds in accordance with the size of their relative loss. This means that payments to these policyholders equate to 22.4% of their relative loss. Furthermore, as part of closure the scheme was able to double the payments made to non-WPA policyholders who were in receipt of Pension Credit, thus providing additional support for this vulnerable group.

In July 2026, the government confirmed that as of 31 May 2026, £1.395bn had been paid out of the scheme.

Closure of the scheme

The scheme closed to new members at the end of 2015 and successive governments have said there are no plans to reopen the compensation scheme.

On 17 September 2026 the government reconfirmed that it had no plans to reopen any decisions relating to the payment scheme nor to review the £1.5 billion funding allocation.

Campaign for further compensation

The Equitable Members Action Group (EMAG) is a campaign group set up by affected Equitable Life policyholders. EMAG campaigns for the government to reassess the £1.5 billion amount set aside for compensation given the actual financial loss amounted to £4.1 billion:

But nearly one million victims of the Equitable Life scandal are still waiting for the £2.6bn unpaid balance of compensation they are still owed following government and regulatory maladministration, as found by the Parliamentary Ombudsman.

EMAG has also raised concerns around the government’s method for allocating the compensation amount, which meant that the majority of affected policyholders only received a small percentage of the money they had lost:

In 2011 the Government allocated £620m to those already receiving an annuity (covering a claimed “100%” of their assessed relative losses), leaving just £780m to share amongst one million other victims, and a £100m contingency. This means the vast majority of victims have only received 22% of the money they had lost because of a decade of failure by the Treasury and financial regulators.

The Government also decided that only With-Profits Annuitants who took out their annuity after September 1992 would be eligible for full compensation. After further campaigning by EMAG, With-Profits Annuitants who took out their policies before the September 1992 cut off were given ex-gratia payments of £5,000 (or £10,000 if they were in receipt of Pension Credit).

EMAG has also suggested that, on the basis of information they have received from freedom of information requests, the government is set to retain some of the money set aside for compensation. This includes some of the money which was set aside by the government for contingency funds in case some policyholders receiving annuity payments were to live longer than expected.

In March 2026 Helen Morgan (Lib Dem) asked the government how much money the government was expecting to retain from the scheme. Pensions Minister Torsten Bell did not discuss plans to retain any funds but said that the scheme was “on track to distribute the remainder of the £1.5 billion as planned” in annual payments to eligible policyholders.

Parliamentary activity

Since the Equitable Life controversy first came to public attention, it has continued to raise interest in Parliament, including from the APPG for Investment Fraud and Fairer Financial Services.

The Public Administration Committee held an inquiry into Equitable Life in the late 2000s and published two reports on the controversy in 2008 and 2010. The first report, Justice delayed: The Ombudsman’s report on Equitable Life, was published before the government announced it would establish a compensation scheme. It supported the ombudsman’s recommendation for compensation and called on the government to accept the findings of maladministration. The second report, published in October 2010, called on the government to re-examine the terms of reference it was using to design the compensation scheme, which would be less wide-ranging than recommended by the ombudsman.

Secondary information

Type: Research briefing
Reference: CBP-12203
Subjects: Compensation Financial services Equitable Life Assurance Society Maladministration Pensions Parliamentary Commissioner for Administration
Contains statistics: Yes
Published by: Business and Transport Section; House of Commons Library
Link: View this Research briefing on researchbriefings.parliament.uk