Tens of thousands of with-profits annuity policyholders with Equitable Life are being sent letters t...
Tens of thousands of with-profits annuity policyholders with Equitable Life are being sent letters telling them their income is about to be slashed by up to 20% because the society can no longer afford the payouts.
This comes after a summer of rising penalties intended to stop policyholders from switching out, and nine months after the courts approved a controversial rescue plan.
That plan was supposed to save Equitable Life at the cost of cutting back on guaranteed annuity rates and restricting policyholders rights to sue for compensation.
Equitable Life chief executive Charles Thompson blames the stock market falls this year and says that, to be fair to other Equitable policyholders, the with-profits payments must be reduced.
A statement inside Equitable Life's interim accounts, published today, reads:
"The Board has been concerned not to disadvantage interests of holders of with-profits annuities who cannot surrender their policies. To date the 16% policy value cut and the 10% maturity adjustment that applies to other pension policies were being phased over a number of years."
The statement continues: "The significant fall in the [Fund for Future Appropropriations] means that the Society can no longer afford to phase the reductions and regretfully it is necessary to advise with-profits annuitants of significant reductions in their future payments, to bring them into line with all other with-profits policyholders. Details are being sent to those affected," says the statement (see page 7 of the interim results).
The action has drawn immediate condemnation from Equitable Members Action Group spokesman Paul Braithwaite.
"This is a horrible blow for the annuitants. They had been led to believe that the effect to them [of the compromise agreement] would be smoothed over several years."
When asked whether the new letter breaks any implicit or explicit promises from the company, Braithwaite answers: "yes".
Indeed, Equitable's own words are likely to be continually seized upon by EMAG, the Equitable Life Members Help Group and the Equitable Life Policyholders Action Group.
Equitable Life chairman Vanni Treves wrote in a letter to policyholders on 8 February this year that the accepted compromise deal was the only way forward for policyholders, and would be the best way to guarantee policy values.
"In recent days we have read speculation that some Independent Financial Advisers (IFAs) will tell policyholders to 'take their uplifts, surrender and run' to another provider," the letter says.
"While such action often generates commission income for IFAs, policyholders should seriously question its wisdom. Those leaving the fund early pay the financial adjuster (set at 10% at the time of writing). Another provider may charge them an entry fee, which could be as high as 5%, and higher on-going charges. These costs could knock a substantial hole in savings and require a significantly stronger investment performance from the new fund for many years simply to put policies back to where they would have been with Equitable Life."
"Meanwhile policyholders should not be concerned by lurid headlines on our fund's future. We will continue to protect policyholders' interests by ensuring that those who choose to leave early do so without damaging the fund."
"As a closed fund we will not face the substantial marketing and sales costs incurred by other insurers as they compete for new business. Inevitably there have been substantial one-off costs in the last two years. We can now put those behind us and through our service agreements with the HBOS group restore our highly efficient operation to the benefit of policyholders."
"With the compromise in place we can turn our full attention to how best to meet policyholders' aspirations. Some have already retired and are drawing an annuity, some welcome our cautious investment policy and others may wish to see higher stock market investment. Certainly all policyholders benefit from the scheme giving greater stability and investment freedom."
"The investment climate remains unpredictable. However the compromise represents great progress and thanks to the overwhelming support of policyholders we can now move forward to a more encouraging future."
EMAG has commissioned a report by Ned Cazalet into how the Equitable Life got it so wrong, which Paul Braithwaite says will be published shortly.
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