Press Release from Equitable 16 July 2001


At the Annual General Meeting in May the new Board of Equitable Life undertook to put the Society onto a more stable footing. As part of this task it concluded a detailed financial review, including an assessment of cash flows, premiums, the rates of policies maturing and surrendering, the value of investments underlying the fund, obligations to all policyholders, and the fundamental uncertainties already made clear in the Annual Report.

The outcome of this review and the need to ensure fairness between all policyholders have led the Board to reduce final bonuses on with profits policies. Pension policies will be reduced by an amount equal to 16% (14% for life assurance policies) of the policy value as at 31 December 2000. In addition, there will be no growth on policies for the period from 1 January 2001 to 30 June 2001. From 1 July 2001 the growth rate accruing to a policy during the current year will now be 6% (5% for life assurance policies) per annum. Guarantees under policy contracts will, of course, be met.

This action is vital for the long-term interests of the Society and its policyholders. The decision was taken, and could not be delayed, because:

- Stockmarkets have fallen heavily over the last 18 months;
- Maturity values now significantly exceed the value of the investments underlying maturing policies;
- As a mature fund, a large number of policyholders are currently retiring and taking their benefits..

The FTSE 100 has fallen almost 20% since January 2000 and more than half of that fall has been this year. In the same 18 month period policy values grew by over 7%. The Society cannot keep adding growth to policies whilst the underlying investments have been falling.

The Society remains solvent. However, because it is closed to new business the Board must take greater account of the value of maturing policies compared to the value of investments underlying these policies. The Society must be fair to all policyholders. If the value of maturing policies is too far above the value of investments, policyholders taking benefits now will gain excessively at the expense of all other policyholders.

The financial position needs active management and the Board will reconsider bonuses regularly to take account of changes in the value of the with profits fund.

The Financial Adjustment, which is applied to policies that are surrendered early, is reduced from 15% to 7.5% because policy values will now be closer to the value of underlying investments.

Vanni Treves, Chairman of Equitable Life commented:

"Difficult times require difficult decisions. We very much regret the need to reduce bonuses and the great concern this will cause policyholders, particularly after the disappointments they have suffered in the past year. Given the impact of market movements, the Board believes that this action is absolutely necessary and is in the long term interests of policyholders."

Charles Thomson, Chief Executive added:

"This was a hard decision but in our current situation we must not pay out policy values significantly above the level of underlying investments. If we do, those leaving now will gain at the expense of those who remain. This decision provides a sound base from which the Board will seek to improve bonuses as soon as asset values permit.

"The legal reviews into past events are being pursued vigorously. But we must now look forward. Much work is underway on developing a proposed compromise scheme between policyholders with guaranteed annuity rates and those without. If a successful compromise is achieved the Society will be financially stronger, we will have greater investment freedom and will be better able to weather market fluctuations. We will shortly be issuing a consultative proposal to move the compromise forward with a view to a vote around the end of the year."

This statement is being published as an open letter to policyholders in the press. Policyholders will also be sent a letter within the next fortnight giving more information and examples of how this change affects different policies.


A pension contract with a total policy value as at 31 December 2000 of #50,000 will be reduced to #42,000. From this base growth starts to accrue to the policy, at the rate of 6% per annum, from 1 July 2001. If the guaranteed value of the policy is above #42,000 on maturity in accordance with policy terms, the higher figure will be paid.

For with profits annuitants the impact of this change is being spread. Last year the impact of withholding growth on with profits annuities was spread so that 1% of the return would be withheld each year for 5 years. That measure taken together with this decision will mean that a total of 1.5% of the return (currently 6% per annum) will now be withheld each year until further notice.

Growth on policies in 2000 and 2001

Policy values increased at the rate of 8% per annum in 2000, although 4.7% was set aside to pay for the additional cost of GAR policies, giving net growth of 3.3%. In 2001, prior to the bonus reductions announced to today, growth had been accruing to policies at the rate of 8% per annum.

Maturities/Surrenders Already Underway

Where policy holders have already given instructions in writing that they wish to take benefits within 7 days or to surrender their policy immediately, the value will be calculated on the old basis provided their documents are received within 14 days for pension policies (or within 7 days for all other policies).

Past Growth

A policyholder who took out an Equitable Life Pension policy 20 years ago and contributed 1,000 each year would have had a total fund valued at 88,915 prior to this reduction and 71,890 following this reduction. These equate to annual growth rates of 12.8% and 11.1% per annum, respectively, over 20 years.