EQUITABLE LIFE MEMBERS

Letter of the Week

Dear Mr Thomson,

 

I have received a reply to my letter to you dated 23rd November acknowledging my formal complaint and pointing out that the part of my annuity made up of final bonus is not guaranteed.  This reduces the value of my annuity by such a large amount that I must take every possible action to obtain compensation.  If the Society becomes insolvent my annuity will have negligible value as the “guaranteed” part of it is only 64% of the 2002 payment and the “guarantee” is only that the remainder will decrease at 6.5% p.a.   On top of this I, unlike ordinary with-profits policyholders, cannot leave.  This situation is intolerable.

 

My case rests on two facts: Firstly, highly misleading sales methods and secondly, deliberate manipulation of bonus rates by the then directors to my disadvantage while the annuity was in operation.

 

When I transferred funds to you in 1988 I intended to buy a fixed rate annuity, as at that time you were offering one of the best rates on the market.  Your representative Roger Craig from your Leeds office persuaded me to change to a WPA.  He recommended it very highly and used illustrations showing the WPA fund outperforming a fixed annuity by a factor of well over two.  He made light of the risks and concentrated on the probable gains.  In fact he did not point out any risks at all.

I have all the documents presented to me before I accepted my WPAs.  Nowhere in them is it made clear how important the final bonus would become, in fact I was under the impression that the whole of the return of the with profits fund would be applied each year to increase my annuity.  How otherwise could it hope to prosper with an annual reduction of over ten percent built in?

 

At no time was I told that the ratio of annual bonus to final bonus was completely at the discretion of the Directors nor was it made clear how the final bonus was to be treated as part of each annuity payment (How is it treated?  Is it removed at the end of each year?).  The proportion of my annuity made up of final bonus has increased steadily over the years.  I suspect that the directors have done this deliberately in order to decrease their liabilities to me.  Furthermore I believe that my annuity payments would have been substantially higher if the ratio of annual to final bonuses had not been deliberately moved in favour of final bonuses.  This feature of my annuity requires very complete explanation as it looks like deliberate manipulation by the then directors both to decrease my annuity and my guaranteed fund.  All of this was done without any explanation at the time or prior warning that it could happen.

 

At no time was I warned how serious would be the loss of the guarantees built in to a fixed annuity.  Instead of a fixed annuity based on funds invested in appropriate gilts, I was persuaded to join a fund not merely wide open to the vagaries of equities but also to the whim of the directors in their choice of bonuses.

 

One must ask why the Society was so anxious to sell WPAs as opposed to fixed annuities, when if the prospectus was correct, they would be paying out far more.  Was it because the Society preferred to gamble with the funds invested rather than to place them safely in gilts and draw only a small fee while the capital disappeared during the life of the annuitant?  Was it because the Society could gamble with the annuitant’s funds knowing they had safely transferred the risk of loss to the annuitant?  That there was some compelling incentive for the Society to sell WPAs is not in doubt as the customers were subjected to a very clever and subtle sales technique.

 

I have no doubt that the WPAs can prove a very serious case of miss selling compounded by manipulation of bonuses which come close to fraud.  We will pursue our claim through the appropriate channels and take advice on taking legal action as a group.

 

I would personally be willing to compromise in order to save further damage to the Society and the other members.  I am willing to accept a transfer to a fixed guaranteed annuity at the rate available when my WPAs were taken out and as soon as this is agreed return the amount by which my WPAs payments have exceeded the relevant fixed annuity.  The amount returned to the Society to be spread over four years.  This proposal should achieve, at least in the short term, the same result as the cuts called for in WPAs and give the WPAs a fixed value at last.  Only action such as this can release the WPAs from their most distressing situation of being chained in the bilges of a sinking ship.

 

Yours sincerely,

 

 

T W R Davies.    

  

P.S.  In addition to answers to my complaints above we should be told far more about the state of the with profits fund.  We need to know:

  1. The total value of the fund on a daily basis.

  2. The details of the investments making up the fund.

  3. The performance of the fund over the last few years, separating out withdrawals and new investors.

  4. The known liabilities for miss selling etc. to ex policyholders.

  5. The total number of policyholders in each class.

  6. The total value of each class valued as  at 19th July 2000.  Valuing WPAs at the sum required to buy a fixed rate pension now equal to one they could have chosen, and fixed annuitants at the current open market price of their annuities.

  7. Are the fixed rate annuitants paid out of a separate gilt fund or the with profits fund? 

This information, which must be in your possession, could be published on your web site at little cost.