MEETING HELD ON MONDAY, 17TH SEPTEMBER, 2001
AT THE LYNDHURST COMMUNITY CENTRE AT 7.30 PM
Liz Kwantes suggested to me that Dr. Andrew Threadgold might like to speak
to our Group. He joined the Board in April, 2001 after working in
different areas of the investment management world. A letter
was written to him and he agreed and about 2 months later the group held
its first meeting at the
Lyndhurst Community Centre. Hotel rooms in this area are expensive
so it was decided to book in a community hall which was adequate.
Equitable paid the full commercial rate for the room in cash on the
There had been about 33 people enquire about coming to the meeting.
On the evening there were 22 people, plus Andrew Threadgold, who attended
the meeting. All arrangements had been made by e mail and the web
Doors opened at 7.00 pm and the meeting started at 7.30 pm. The
meeting finished at 10.00 pm. Members signed in the book on
arrival, and were given a questionnaire on their arrival to help with the
organisation of a future meeting.
The Meeting Organiser gave a brief Introduction for about 5 minutes about
such things as the programme for evening, objectives, our group, etc.
Andrew Threadgold gave a very detailed account for about an hour of the
history of events of the Equitable problems from written notes which have
led to the situation today. He gave a lot of facts and figures and
stated several times that the Company was very solvent. The history
available on the web sites and have been printed in newspapers so I have
not included them here.
This was followed by Questions and Answers. Everyone who wished had
the opportunity to ask questions. One person in the front asked
rather a lot of technical questions which were over most people's head.
All questions were answered fully and efficiently.
There will be Equitable Road Shows in the future at Bournemouth, Bristol
and Brighton. Dates to be given.
Equitable will be sending out Compromise details soon which we have to
read and decide upon.
The local BBC Solent radio e mailed and phoned at tea time on the 17th
September, 2001 for information and someone to speak the following day.
It was arranged that one of the members at the meeting would deal with
One of the members wrote a brief synopsis and this attached.
Another Equitable policy holder wrote notes which he thought was
applicable to my own situation and these are also attached.
One member placed an advertisement in the local Isle of Wight paper but
this did not appear to get results.
All arrangements had been made by e mail and the Southern Area web page.
Members invited were those people who had made contact earlier via the web
Members were asked to sign in a book as a record of who attended the
meeting. They were also asked to fill out a questionnaire as an aid
to any further meetings. These notes will be analysed later.
I promised to pass on any Equitable information to members, and hoped that
they would contact me again if they wished to have another meeting.
A member thanked Andrew for all the information he had given out during
the evening, and thanked me for organising the meeting. The evening
closed at 10.00 pm.
I spoke to members after the meeting and they all said that it had been a
good evening, that it had been well worth the trip, and they were glad to
have had the opportunity to come.
The meeting with Andrew Threadgold
He said that the operational activities had been sold. The
administration and sales forces has been sold to the Halifax. There
are no service level agreements in place and Equitable do not have
operational control over what goes on. They are trying to make it
work but it is not an ideal situation.
Previously the Equitable as a successful life insurance company handled
the administration very efficiently but it was not designed to handle the
level of queries, complaints, questions that it now has to deal with.
He said that the service levels are atrocious. Equitable measure the
service levels by
the calls that are not answered. New staff have to be trained by
existing, experienced staff. The service levels are likely to main
unsatisfactory for sometime and a large number of policy holders are
seeking advice or have complaints.
The sales force is now labelled the Halifax Equitable and they are trying
to sell products for a company called Halifax Equitable. They have
no interest in the policies that they have sold.
The Equitable, as you know, if a mutual and the people who ran the
Equitable in the past believed in mutuality and used mutuality in selling
policies. The company ran with a very low level of reserves.
They thought that had all the positions covered and there were no reserved
that could be called upon
when something unexpected happened. They are not a PLC either.
When things started to go wrong the number of routes open to them was not
Equitable had predominantly sold With Profits products and these are very
acceptable if they held to maturity when they are kept for a long period
of time. Early termination is not so good. There is an enquiry
into the With Profits Industry. Equitable did sell With Profits
products and the advantages of this is that it allows a high proportion of
the portfolio to be held in risk assets.
There were policies prior to 1988 called Guaranteed Annuity Rates.
Pre 1995 did have GARs in them but they are fairly low guarantees.
When these policies were sold those guarantees were not thought to be an
important thing on the product. Inflation in the previous years was
Interestingly, this was not used as a major selling tool. As
inflation was driven out of the system and bond yield have fallen the
level of the annuity rates that we are available in the market started to
fall below the guaranteed scale. This problem has been with us since
1993 and now the open market is substantially below the guaranteed levels
of the GAR products.
We have read in the newspapers that Equitable could avoid the guarantees
for policies that have GARs in them and this was thought to be so even
after the Court of Appeal case. (CHECK The Court of Appeal
found that it was not right that if you opted to take cash or a spouses
pension then it was suggest cutting the final bonus). The Court of
Appeal said that they could not do what they expected. It was
thought that they could ring-fence the Court of Appeal but the House of
Lords ruled that it could not be ring-fenced. Pre 1988 there was not an
open market option on the annuity rate.
The other key thing about the House of Lords decision in 2000 was that it
said that the Board could only award one bonus. One with Profits Fund of
which there are many policies written but the Board could not discriminate
against any particular group of policy holders. The freedom that
to write some of the issues now is very constrained because they have only
part of one bonus, whether it is GAR or not. there are issues about
different policy holders.
The Board cut year 2000 bonus by seven twelfths. Talking about 4%
final bonus cut by seven twelfths was actual bonus given to ... 3.3.
4.7 was clawed back if you like and was expected to meet the expected cost
of providing the expected annuities of the higher policies. To try
and get the matter on a firmer keel the Board tried to sell the business
but it was thought too risky and it was sold to the Halifax Operational
business. Cost half a billion pounds down and another half billion
conditions on 2 things:
250 million conditional agreement between the GAR and non GAR
holders. 250 million being conditional on the old Equitable sales
force, now transferred to the Halifax meeting certain sales targets which
are probably unlikely.
250 million if we can get a compromise agreement. The started figure was
26 billion and is now under 23 billion at the end of 2000. It was
22.8 billion at the end of June. Stock markets have fallen.
25 million is only 1% of the funds.
The Board introduce MVA and that was due to the fact that they were over-bonusing
in the Equitable during 2000. He was talking about 8% bonus and that
was clawed before ... to meet the GAR costs. There was substantial
over-bonus in 2000. The 2001 stock markets are down. At the
start of the year, half the market was in equities. It is now 40%.
There were 3 factors confronting the Board:
- policy holders,
- overbonusing to members
- MVA was dealing with the problem for people who surrendered.
2.1 billion flowed out of the Society with 0.6% as surrenders. The
rest were people maturing their policies. The reason was that
Equitable had given very flexible policies. Lots of people were
getting out very well. People maturing policies with maturing values
that were substantially over valued. Equitable had to take cuts in
How to resolve the uncertainty with GARs:
Equitable need a compromise agreement to settle the nature of the
liability of the GARs. There is 1.5 billion liability (plus 200?) to
put right. It was thought that the GARs would cost 1.5 billion.
Because of the way that life assurance industry regulates work Equitable
are required by the FSA to reserve 2.6 billion against the GAR liability.
It is important that Equitable free up one billion pounds in reserves.
If bonds fall the GAR increases. If the bonds rise then the GAR
liability will be less.
How to resolve the uncertainty with the GARs.
Equitable needs a compromise agreement to settle the nature of the
liability of the GARs.
It is 1.5 billion liability, plus 200 million to put right. It was
thought that the GARs would cost 1.5 billion. Because of the way
that the life assurance industry regulates work Equitable is required by
the FSA to reserve 2.6 billion against the GAR liability.
It is important that Equitable free up one billion pounds in reserve.
If bonds fall the GAR increases. If the bonds rise then the GAR
liability will be less.
Substantial destabilisation of certain cash out-flows. If someone is
going to leave next year the Equitable need that money available.
7-8 billion in cash in the portfolio at the moment because that is how
much could run out of the Society in the next year or two. Equitable
does have the money in cash.
Equitable has a very lean solvency. It was stated that the Equitable
is solvent and they will make sure that it stays solvent to meet the
minimum legislation requirements. Equities are much more volatile
over time. Equitable is solvent. He said that it has always
been and it always will be and they can manage the portfolio to make sure
it stays solvent.
There is the possibility of a claim by non GAR policy holders since 1988
they may have been missold-sold they were not told about the troubles.
The compromise agreement will have to deal with some compensation to the
Guaranteed Annuitants. This is a 'Zero Game'. It all has to
come off the
top. If there is a lot of compensation there will be no bonus to
pay. It will be a case of compensation or bonus. Compensation
will be added to the policy. this is the proposal. There is a
consolidation document which will hit policy holders mats later on this
week and it is a consultation document
and Equitable is asking for feedback. They will modify it if
they need to, then we have to vote on it, and this has to be completed by
March. The important thing is to free up reserves which are
necessary to hold back the Guaranteed Annuities under the FSA regulations
of 2.6 against it. The best
estimate of the cost is 1.5. It has to be held in less risky assets.
A figure of 2.8 billion was mentioned for the portfolio. Cash 5% or
6%. Equities will get, in the medium to longer run, 9 or 10% if they
are lucky. The differential is 4 or 5% and that matters, and it has
worked unfavourably during the last 12 months.
Regarding administration, Equitable have increased resources but there are
no improvements. The poor service that is given just creates more
work and clogs up the telephone system. The hope is that Equitable
will get a promise solution through and get a better solution. A
closed fund in the Equitable will offer as attractive funds as any other
life assurance company.
The outflows will be affected and after a compromise agreement people will
decide what to do and things will stabilise. In the interim period
it will be unsatisfactory. There will be 6-9 months of poor
administration as there will be a great increase in people claiming money.
Regarding the 'over-bonusing', Equitable thought it was unfair to allow
people to take more than their fair share of the assets with them.
He talked about the bonus during the year 2001 and stated that in some
sense there was a real cut in bonuses and Equitable restricted policy
The MVA of 7.5% was changed to 10% last week. Stock markets have
fallen and Equitable have a high proportion in equities.
Those people whose policies were maturing were taking more than their
faith share and that extent to which we been over bonusing only really
came apparent after the AGM. At the time of the AGM the Footsie was
about 6000. On Friday it was 4750 and there was over bonusing in the
year 2000. Equitable knew at the AGM that they were paying a
bit too much on the market values. In July and August the fall in
the stock market was such that they had no alternative but to make an
adjustment to policy values. Between July and the Compromise
Agreement they had to make a change at the start of the period which was
right for the whole of the period and in the event Equitable were proved
right. Two big things have changed. Equitable is now a closed
fund and so there is no cash coming in. People coming in are getting
less and things will work themselves out over the next 20-25 years.
If people are leaving with too much money it creates problems.
Normally matures were one billion a year. In the first half of the
year 2.1 billion was lost. Equitable has virtually no excess
reserves so the amount of smoothing at the moment is very little. It
is less transparent with the Equitable. Next year other companies
will be cutting rates if the markets are not good.
A discussion followed about various things.
There will be Road Shows in Bournemouth, Brighton and Bristol.
Session was held with the National Action Groups on Tuesday, 18th
September, 2001 who have received a copy of the document. Equitable
did not want an unfavourable comment from the Action Groups.
The Compromise Agreement was mentioned and this should now have arrived
with members. People are giving up rights which Equitable think is
in people's interests. Equitable is not insolvent and cannot go down
the routes that require it to be insolvent. It can go into
liquidation at very high costs. Payouts will not be so tax
efficient. There would be a big downside. There would be a
freeze on funds from the Equitable for a period of time.
The question was asked about how long the freeze would be.
Members were told that there are not many downsides. Liquidation
does not seem a possibility. There is a Policy Holder Protection
Board and this would swing into the options. The figure mentioned
would be 90% of policy values, ie 10% less than what is offer at the
moment. He said that the Treasury
would keep the surplus.
There might be another way and this would be to continue as now with
unstable funds with an uncertain continued liability and mis-selling
claims from non GARs. All non GARs post 1988 have been mis-sold and
these people have to bear the cost of the Equitable for mis-selling.
Non GARs are paying three quarters of the cost.
The Equitable does not provide the best equity rates at the moment
ANYONE OVER 60 WHO IS GAR AND DOES NOT LIKE THE PROMISE CAN MATURE THE
AND THEY WILL BE GIVEN THE OPTION TO DO THAT.
It was stated several times that Equitable is solvent and it will remain
solvent. However, the fall in the market might affect the assets.
He did not feel that the Government would bail Equitable out. Any
failure in Government regulations the Government might pay but it could
take ten years. There would be auditors, lawyers and other costs and
this seems unlikely. Actuaries do not have deep enough pockets.
MOST OF THE GARs ARE SINGLE LIFE POLICIES. Most people surrender
annuities in exchange for a spouses pension.
Non GARs - There are six reason why people might claim. The Warren 2
summary WILL BE ON THE EQUITABLE WEB SITE. Members can use the pin
number to check policies.
The quality of advice coming out of the Equitable at the moment is not
MVA is 10%. If the compromise does not go through it might be a
serious state of affairs. Wait and see if the compromise deal will
go through and then decide. Group system are treated as a class deal and
cannot as a group get more than asset share.
After the compromise, Members between 50-75 can still mature the
policy. People with Profits Annuity are affected by the cut in
policies. These people will be affects.
People were told to shop for annuities. Other companies are loss
leading on annuities.
It was said that most people take the 25% tax free lump sum. Some
spouses can get a pension and this looks to be two thirds of the
Guaranteed annuity. It is possible to crystallise GARs now.
A SYNOPSIS BY MARTIN YOUNG
Christine Jenkins of the Equitablesagroup invited Dr Andrew Threadgold,
Director of ELAS to give a talk to local policyholders. The venue was the
Lyndhurst Community Centre, Lyndhurst.
Dr Threadgold stated that the draft 'compromise' agreement would be in the
post this week This is a consultation document, and there will be a series
of 'roadshows' around the country (including Soton) where the membership
would be invited to submit their comments.
There may be some amendments, then the vote is anticipated to be in
December, followed by a Section 425 court application, and an anticipated
settlement date of 1 march 2002, in order to qualify for the additional
payout of £250 million, from the Halifax.
A comment from the floor was that this is a small percentage compared to
the total fund.
ELAS are overloaded and ELAS recognise that their level of service is
pre 1975 the GAR was low
from 1975 to 1988 the GAR policy was not thought to be important part of
the product. The GAR was there for regulatory reasons.
Post 1985 Bonds were falling, and inn 1993 fell below the GAR level (IN
other words the problem was apparent in 1993)
ELAS thought that they could cut the final bonus (wrongly as it turned
out) even after the Court of Appeal. ELAS still thought that they could
'ring fence' the GAR issue.
Why did things change in 1988
change in legislation across the Industry
What was the justification for the change
Dr A T
" In 1988 it did not need to be a genius to see problem coming"
Loss of 7 months bonus in yr 2000 was to meet the expected cost of the GAR
Fund value end 2000 £26bn
There was an 'over bonus' for yr 2000
3.3% was distributed, whilst fund grew by only 2%
Since Jan 2001 FTSE has fallen by 25%
In Jan 01 50% in equities, now only 40%
Of the £2.1bn loss in the wp fund this year £0.8bn is transfers, the
rest contractual (people taking their pensions)
How to resolve the GAR issue
ELAS estimate of cost is £1.5bn
FSA require reserve of £2.6bn
A settlement could 'free up' £1bn
Insurance was not an option
Stressed ELAS is SOLVENT
Legal advice suggests that there is 'something in this'
Not much scope for modification
Vote requires court approval to be binding on those that voted NO
It is most important to free up the reserves (approval for GAR compromise)
Fund will remain CLOSED even after YES vote
(Agreement with Halifax)
Admin problems not due to improve for at least 6 to 9 months
Recent (16 July) cut designed to be FAIR as stock market had fallen since
beginning of year
He stressed Fairness and Asset share in justifying the 16 % cut & 6
Re those caught in the pipeline - genuine attempt to do the right thing
though the request had to be in writing
(On my particular case he indicated that I might have had good grounds for
Action Groups would have a pre-view of draft compromise to enable informed
comment to the press
If NO vote consequences will be DIRE Liquidation would take time, accounts
frozen, no payouts for a long time including existing annuities, tax
Possible litigation costs of the non-GAR claims Low returns
If YES GARs will get an uplift, and can go for Open Market option
Non-GARs will get a SMALL uplift
Re suing those responsible
Pockets not deep enough will only net a few million
(I am not sure this is correct, I suspect that the indemnity of the
Regulator, Auditor, Legal advisor etc is HUGE this needs
(Therefore easier to steal from non-GARs)
This will not be freely available
Available to ELAS members on ELAS web site
If a No vote advice is to review your options
A closed fund could give good returns
Re group scheme transfers
Yes they are treated differently a valuation is done on the leaving date
ensure they only get their asset share
No service level agreement with Halifax
Re my request for answers to questions
Current level of cost of GAR annuity per £100,000 of fund value he put at
£135,000 to £140,000
Re questions as to
If all GAR what level of return would we have?
If all no-GAR would the problem have arisen
He did not want to be drawn into this
Dr A T said that the only loss the non-GARs suffered is the lost 7 months
bonus of yr2000
(This is wrong we were all part owners of a mutual society that was worth
3.5 to 4.5 bn, whatever extra uplift the GARs get over and above the non-GARs
have come from the pockets of the non-GARs, IT IS NOT A COMPROMISE!)