On the go: Equitable Life has finally passed into oblivion, closing its doors to a dwindling band of existing policyholders and falling into the hands of Utmost, a private equity firm that mops up old life companies.
The deal, which took effect on December 31, was announced in June last year but has taken 18 months to win the approval of policyholders, regulators and UK courts.
“Everything took a bit longer than expected,” Ian Maidens, chief financial officer of Utmost, told the Financial Times.
The deal covers more than 300,000 policyholders and around £6bn of assets. Many of the customers who are still with Equitable Life have agreed to give up financial guarantees as part of the deal, but in return the value of their policies will increase by between 65 and 75 per cent.
Reported in the Financial Times, Paul Weir of campaign group Equitable Members’ Action Group said Equitable policyholders had “finally [had] some benefit for their loyalty”.
Industry giant came crashing down
From 1913 to 2000, Equitable Life was one of the biggest names in pensions with up to 1m policyholders, and was one of the biggest providers of additional voluntary contributions covering 7,000 company schemes.
However, the company closed its doors to new customers in 2000 amid scandal about guarantees it had failed to meet.
While in 1999 it received more than £2.5bn of premium income from pension business together with industry accolades, a hidden time bomb was ticking in the form of guaranteed annuity rates.
A GAR policyholder is entitled to acquire an annuity by applying a guaranteed fund (including terminal bonuses) at the guaranteed rate specified in the GAR policy.
For many years, market annuity rates were better than the guaranteed rates found in these policies, but falling interest rates brought the GARs in excess of market annuity rates by an increasing amount.
To deal with this, Equitable Life attempted to reduce the ‘final bonuses’ paid to those who opted for GARs, but was defeated in a legal test case before the House of Lords.
Following the House of Lords case Equitable stopped writing new business on December 8 2000, unable to find a buyer to restore the capital strength of the with-profits fund and leaving its performance constrained.
Although Equitable Life is no more, EMAG is still campaigning on behalf of 1m people who lost money in the scandal.
Mr Weir told the Financial Times that the government has admitted that it owes more than £4bn to people who lost out because of regulatory failures, but has paid less than £1.5bn so far.
“Most people feel a burning sense of injustice,” Mr Weir said. “It was a body blow to my retirement plans.”
