Eumaeus is back. A warm 2019 welcome to all our readers who haven’t forgotten about us, and our best wishes to those who have.
As is customary at such times, we reflect on the stuff that happened last year, and upon what will happen, or might happen, in the next.
The main event for us was at the beginning of August 2018 when we opened for business, and when Kevin published Asleep at the Wheel. It is now generally recognised, although not universally, that the guarantees embedded in equity release mortgages have been significantly undervalued, and the solvency of some firms could be impacted as a result. There was some scepticism at the time, but the PRA followed up with a policy statement that confirmed the correct pricing method. There is still some confusion about when firms have to use that method, but we will discuss that some other time.
The second thing was the publication of our joint paper, Equity Release: A New Equitable in the Making, which pointed the finger squarely at the Institute of Actuaries for promoting dubious valuation techniques. They are still at it, of course, and they have promised a result in February, so we shall see. Connected with this was the announcement in the Kingman Report that the powers given to the Financial Reporting Council in the aftermath of the Equitable Life affair were in fact ‘limited or even non-existent’. Good to know that. The Treasury has now demanded effective regulatory oversight of the actuarial profession. Which is what it demanded following Equitable, but we shall see.
Looking forward to this year, our focus will be on pension provision and the way that certain firms seem to be profiting in mysterious ways from defined benefit schemes. This article is relevant. Someone called Vincent Tchenguiz is complaining about proposed changes to the leasehold system (by the Law Commission) that threaten “unintended detrimental consequences to the entire property market”.
The tycoon’s company argues that proposed changes to leasehold could lead to consequences ranging from higher home prices and bad property management to pension funds being forced to write down loans.
Tchenguiz has an “ethical concern” over lenders such as pension funds being forced to write down loans, apparently. That’s all very interesting, and to my knowledge the first time anyone has admitted that large amounts of pension money have been thrown into the ground rent racket.
Surely the ethical concern is that regulators allowed this to happen in the first place?