TONY HAZELL: Why we should not pay out for Equitable Life

The Government' s refusal to pay immediate compensation to the victims of the Equitable Life scandal may seem outrageous to those who have lost out.

I have much sympathy with their plight - for I was an Equitable customer myself.

Certainly, we were dealt a disastrous hand by the regulators, whose failure to keep a closer check on the insurers' activities has cost us dear.

Yes, the parliamentary ombudsman has delivered a damning report that has ordered the Government to pay out as much as £4.5billion. And yes, it seems unfair that billions of pounds of public money were used to keep Northern Rock afloat, yet we have been denied a single penny.

But perhaps controversially, I believe the Government is right not to help us out.

Why? Because it would set a dangerous precedent. In a perfect world, we would all be able to invest our savings, knowing precisely what we would get back.

But this is not the nature of investment. Any play on the stock market, in whatever form, involves risk. Part of the gamble is choosing which company to trust - and the standard way to improve the odds is not to put all your eggs in one basket.

Regulation cannot - and will never - remove risk altogether.

And the taxpayer should not be expected to cough up when an investment falls short of our expectations.

The moral hazard of guaranteeing every investment through all-pervading compensation is that people would no longer properly weigh up the risks before parting with their money.

Ross Altman is one protestor calling for the Government to pay up (see related story)

That's not to say that customers of with-profits schemes such as Equitable's weren't cruelly misled.

The insurance industry through the Seventies, Eighties and Nineties was a Wild West territory.

Promises were made of fantastic pensions and massive endowment payouts, but these were rarely fulfilled. (Indeed, if every disappointed customer were offered compensation from public funds, then the Government would face a bill of hundreds of billions.)

Most with-profits funds have, like Equitable, been forced to close to new business because they were running out of money.

The reason? They paid out too much to get to the top of the 'best buy' league tables and made promises they could not keep.

For many investors, it has undoubtedly led to huge financial worries. But it's important to remember that what they have suffered is, in the main, a loss of expectations.

The majority will have gone to Equitable without taking proper financial advice. The insurer made a selling point of the fact that it didn't pay commission to financial advisers, claiming this led to bigger payouts to investors.

In fact, much of that money went on high incentives to its own staff and into outfitting its plush headquarters. That lack of independent advice goes some way to explaining why investors were still pouring in money when many on the inside track knew it was collapsing.

Some of these late investors were speculating on windfall payments in the event of Equitable being taken over.

Others who had policies offering a guaranteed retirement income were investing more in the expectation that these promises would be honoured if Equitable lost a court case on the issue.

These people allowed the prospect of swift personal gain to over-rule common sense, so I see no reason why they should now be compensated by the taxpayer.

True, Northern Rock customers should be grateful for the public money used to guarantee their savings. But the situation was very different. Rock customers had every right to believe that their money was 100 per cent safe.