Equitable Life further dismayed policyholders on Monday when it announced another increase in the ex...
Equitable Life further dismayed policyholders on Monday when it announced another increase in the exit penalty for customers wishing to leave the troubled UK life assurer early, as many of Tuesday's newspapers report.
The Financial Times says Equitable blamed volatile stock markets for its decision to raise the penalty, known as the market value adjuster (MVA), to 20% from 14%. The move means policyholders wishing to leave early would have to forfeit a fifth of their pension fund.
Equitable in April increased the exit penalty to 14% from 10%.
Equitable said its decision was made to protect the stability of its £17bn ($26bn) with-profits fund, which has been badly hit by sliding stock markets even though it has cut its equity holdings to 15%.
The amount of money people are saving for old age could be many billions of pounds a year less than the government thought, ministers admitted on Monday, continues the FT.
Andrew Smith, work and pensions secretary, said there were "problems" with the way pension fund contributions have been calculated.
Government statisticians had double-counted money transfered from one scheme to another, his officials said.
The estimate of £86bn contributions last year was too high, and the difference "could be significant". As a result, the savings gap between what people are saving for old age, and what they need to save, could be much bigger than previously estimated.
The Office for National Statistics will on Tuesday begin an investigation into how the numbers are calculated. But officials there said the problem was less how the numbers had been calculated than how they had been used by the government to show that policies to encourage saving were working. An ONS official said it had not apologised.
To make matters worse, British Telecom investors were yesterday warned by investment bank JP Morgan that the deficit in the company's pension fund could significantly increase when it is formally revalued at the end of this year, says the Daily Telegraph.
A big increase in the deficit would force BT to increase the cash contributions it makes to the fund. The company now pays £200m a year extra to make good the £1.6bn deficit it reported at the end of 2000.
David Brundish, telecoms analyst, said that recent falls in the stock market meant BT's pension deficit, as calculated by the short-term FRS17 measure, would rise from £1.8bn in March to about £4.2bn as of the end of June.
Record numbers of homeowners are cashing in on the rising value of their properties by remortgaging at cheap rates to fund high street spending, according to new figures published in the Times.
In a report that will add to fears about the sustainability of the property boom, the British Bankers' Association (BBA) said that a record 77,676 loans were approved by its members for "mortgage equity withdrawal" in May. This was almost 4,500 above the level in April, and sent the value of loans approved for equity withdrawal to a record high of £1.5 billion during the month.
Mortgage equity withdrawal - remortgaging to fund household spending - was a feature of the 1980s property boom, which ended with a price crash in the early 1990s. Recent rises in equity withdrawal have concerned many economists, who fear that the property boom is running out of control.
In total, £16.5 billion of new home loans were approved by the major banks in May. This was 39% higher than in the same month a year ago. Gross mortgage lending during May totalled £14.2 billion, also a record high.
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