EQUITABLE LIFE MEMBERS
With Profits Annuitants Letter
15 November 2002
Last Updated: Friday, November 15, 2002 12:28 PM
with-profits annuity – planned reduction to income payments
am very sorry to let you know that we will need to make changes to
your with-profits annuity, which will significantly reduce your income
payments. This letter
gives you some warning, before your next review date.
have done our best to protect you, as far as possible, from the major
setbacks we have recently experienced. However, unfortunately, to be
fair to all our other policyholders, we must now begin to make these
which have taken place so far on with-profits policies
20 July 2000, our decisions on bonuses have been particularly affected
falling value of investments in stocks and shares;
cost of guaranteed annuity rates (GARs); and
in the money we set aside for potential claims for compensation.
the House of Lords’ decision in July 2000, we had to reduce the
policies. We did this,
other than for with-profits annuities, by reducing the policy value by
5% at that time. We made
significant further reductions in July 2001, April 2002 and July 2002.
This means, allowing for bonuses, our other with-profits
policyholders have suffered an overall reduction of about 20%.
far we have largely protected you from these falls.
In fact, you and other with-profits annuitants have generally
received a positive investment return of about 14% over the same
we have said, most other with-profits policyholders have suffered
significant reductions in the value of their policies, whereas those
who have with-profits annuities have not.
We were able to do this because if you have a with-profits
annuity, you cannot withdraw your funds.
It was possible for us to phase the cuts to with-profits
annuities in the hope of improved financial conditions. Unfortunately,
because conditions have not improved we can no longer keep doing this.
basically means that with-profits annuities, like yours, are now out
of line by about 30%.
we need to take now
now need to bring with-profits annuities back into line with other
policyholders and we plan to do this over two years.
We will be putting in place the following changes.
your policy anniversary after 1 February 2003, we will reduce the
value of your total annuity, which we would otherwise pay, by up to
20%. This action replaces the current approach of reducing the overall
rate of return over the term of the policy.
We will then reduce your income payment again in 2004 to regain
any overpayment which may still apply.
interim rate of return for 2002 for all with-profits policyholders,
except those with annuities, is zero. From 1 December 2002 we will
bring the interim rate of return for you into line, and this will also
far, we have only taken from with-profits annuity policies in force on
20 July 2000 (the date of the House of Lords’ decision) part of the
5% reduction. We have
previously announced that we will recover this cost at the rate of 1%
each year for five years. This
adjustment applied in 2000 and 2001 and we will now recover the rest
at a rate of 1.5% in 2002 and 2003, or as soon as bonus rates allow.
also review the amount of your income payments each year at the
anniversary of the date your with-profits annuity policy started.
That review reflects the gap between the expected bonus rate
you chose and the bonus rate which applies. This then sets the level
of income payments you will receive for the following year.
The reductions quoted above will apply to the amount of annuity
after this review.
would like to emphasise that you will not receive less than the
guaranteed payments under the annuity (known as the ‘basic
annuity’ and ‘declared bonus annuity’) and this may reduce the
effect of these reductions.
leaflet that includes details of how your with-profits annuity policy
examples of the effect of these changes; and
questions and answers you may find useful.
do we need to change now?
originally decided to spread the reductions over the term of
with-profits annuity policies because we hoped that poor investment
conditions would recover reasonably quickly.
However, we are now in one of the longest periods of poor
stock-market performance for many years. And, like most other
companies, we have suffered heavy investment losses.
We have reduced our investments in stocks and shares to very
low levels in order to secure and stabilise the with-profits fund.
Unfortunately, because of our circumstances now – highlighted
in the Interim Report that you should have received – we can no
longer afford to phase these reductions in.
am very sorry that we have had to take this decision.
We carried out a great deal of work to look for alternatives
that would avoid reducing incomes in this way.
We had hoped to continue to reduce your income in a phased way
over the term of your annuity. However,
our changing circumstances and the growing gap between with-profits
annuities and other policies meant that it would have been very unfair
to other policyholders to continue to act in this way.
We must balance the interests of all continuing policyholders
and it is no longer fair to delay the reduction in values that our
other policyholders have recently suffered.
we cannot set final bonuses in advance, it is not possible to provide
individual calculations before the anniversary date.
However, I hope that the details set out above, together with
the enclosures with this letter, will give you a reasonably clear idea
of how much the reduction in your income next year will be. You will, of course, receive a statement at your anniversary
date in the usual way.
For further information contact Tim Balkwill e-mail TBalkwill5310448@aol.com