Many of you will undoubtedly have been concerned by the recent announcements and press coverage of Equitable Life. The purpose of this note is to give you further information about your investments with Equitable Life and to answer some questions you may have. The Trustee has sought advice from their professional advisers in compiling this note.
However, please remember that the Trustee cannot provide you with financial advice and if you are unsure about what to do about your own investments you should seek independent financial advice. You may wish to seek this from the Personal Financial Planning team within MNPA.
After reading this note your action points are
Following a recent House of Lords' ruling on Equitable Life's treatment of its with-profits investors with guaranteed annuity rate policies, Equitable Life's Board decided that the best interests of members would be met by its sale to an organisation which could provide the financial support required.
As of 7 December 2000, no formal offer had been received for Equitable Life and the last of the parties which had shown an interest in purchasing Equitable Life withdrew from the sale process. As a result, Equitable Life has decided to close to new business with immediate effect.
This means that Equitable Life will no longer set up any policies for new customers, although it will be possible for:
Equitable Life has confirmed that it remains solvent and will continue to pay out benefits. The Trustee, together with it's advisers, will continue to monitor this situation and will provide you with further information as and when it becomes available.
The main implications relate to investments in the with-profits fund rather than the managed (unit linked) or Building Society funds. Equitable Life will continue as a mutual insurance company, owned by its with-profits policyholders. One consequence of this decision is that there will be no windfall payments which might have been payable following the sale of the company.
However, Equitable Life will need to take certain actions that may have an adverse effect on future with-profits investment returns and bonus rates. Equitable Life has stated that it will be necessary to change the asset allocation policy of its with-profits fund. There will need to be a greater proportion of the fund held in fixed interest type investments such as bonds and gilts, rather than in equities. If the historic outperformance of equities against fixed interest stocks is repeated in the future, then Equitable Life has suggested that with-profits investment returns will be lower on average than would otherwise have been the case.
Equitable Life indicated earlier in the year that no bonuses would be allocated for the period 1 January to 31 July. Since Equitable Life has not been able to find a purchaser, these bonuses will not now be reinstated.
No. It is currently paying an overall interim rate of return of 9% per annum. However, future bonus rates will be affected by the change in asset allocation policy, and may be expected to be lower than would otherwise have applied.
Prior to the most recent press release by Equitable Life, the Trustee had sought advice from it's professional advisers and had arranged for a full report to be prepared providing advice on AVC arrangements for the Fund and the options available in respect of the existing Equitable Life arrangements.
This report is due to be considered by the Trustee at it's next meeting at the end of January 2001 but the implementation of alternative arrangements (if this is agreed by the Trustee) will take a little time and may not be completed until Spring 2001.
Consideration has been given to whether, as an interim measure, any future contributions that would ordinarily be invested in Equitable Life's Building Society funds. The Trustee's professional advisers have however concluded that under the Rules of the Fund the consent of a member should be obtained. As a result, AVCs will continue to be invested in accordance with your original instructions. If in your case, this is the with-profits fund and you wish to instruct the Trustee to invest your AVCs in the Building Society or Managed (unit linked) funds you should complete and return the enclosed form as soon as possible.
The Fund's AVC policy with Equitable Life does contain guaranteed annuity rates but only for members who started to pay AVCs before 1 July 1988 and whose AVCs have continued to be invested in the with-profit fund. If you are not sure whether you are entitled to the guaranteed annuity rates please contact MNPA.
You should be aware that at retirement the value of your AVCs are converted within the Fund to pension (unless you commenced AVCs prior to 8 April 1987 and elect to take some or all your AVCs as cash) on the basis of rates agreed on the advice of the Actuary.
At the present time, the conversion rates under the Fund are more generous than the guaranteed annuity rates under the Equitable Life policy.
If this position continues to the date of your retirement then the existence of guaranteed anuity rates would not be a factor in your consideration of whether to continue to have AVCs invested in the with-profit fund.
You should, however, be aware that the conversion factors under the Fund are subject to review from time to time. If the conversion rates were to worsen to the extent that the guaranteed annuity rates under the Equitable Life's policy become more advantageous then the decision, about whether or not you should continue to have your future contributions invested within the with-profits fund, is more complicated.
You should note that the guaranteed annuity rates only apply to investments in the with-profits fund. If in the interim period, pending the Trustee's review, you were to direct contributions into one of the alternative funds with Equitable Life, the guarantee rates would not apply to those contribtuions even if they were subsequently switched to the with-profit fund.
Equitable Life is currently applying a 'financial adjustment' to any withdrawal from the with-profits fund. This means that if your AVCs are transferred, surrendered or switched to other investment options or providers out of the with-profits fund, then a deduction of 10% of the current policy value will be made. This is intended to protect the interests of those investors who remain in the with-profits fund.
The level of this deduction could change in the future. The Trustee will continue to monitor the situation closely but advice at the moment suggests that, at least in the very short term, money need not be withdrawn from the with-profits fund. At this stage therefore the Trustee will not be automatically transferring funds from the with-profits fund although individual members may do so if they wish (any such transfer will incur the 10% deduction).
You should be aware although you may choose to transfer monies between the Equitable Life Funds, you cannot (under Inland Revenue rules) transfer to any other arrangement unless the Trustee offers an alternative AVC arrangement under the Fund.
No. Benefits due on death or retirement (at any time) will not incur the financial adjustment.
The recent events should have no direct impact on these funds. The financial adjustment which applies to withdrawals from the with-profits fund does not apply to withdrawals from unit-linked funds. Equitable Life will continue to invest these funds as at present. However, there is inevitably a degree of uncertainty about Equitable Life's future prospects and there must be some doubt about Equitable Life's ability to provide high quality investment management in the future.
This fund should be broadly unaffected by the decisions taken, since the returns reflect the rates available on corporate AVC deposits with the Nationwide Building Society.
You should consider the comments above and contact MNPA for further advice.
If this were to happen, then the Trustees would be covered by the Policyholders' Protection Act 1975 which guarantees payment of a sum of at least 90% of the value of guaranteed AVC benefits.
The Trustees will continue to monitor Equitable Life's position and further information will continue to be provided if necessary. Otherwise, the Trustee will communicate with all members once the overall review has been completed.
For further information contact:
The Member Liaison Service at MNPA at Ashcombe House, The Crescent, Leatherhead Surrey KT22 8LQ (telephone 01372 200200)
The Personal Financial Planning team at MNPA at the above address (telephone 01372 200300)
Authority in respect of Additional Voluntary Contributions with Equitable Life
My additional voluntary contributions under the Fund are currently being invested in the Equitable Life With-Profit Fund. I authorise the Trustees and Equitable Life to invest any future contributions received from me, on and after receipt of this authority, in the following manner:
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