Time for Rationality, Not Emotion, over Equitable

Article excerpt

Byline: ANTHONY HILTON

City Comment

IT HAS been months in the making, it has required the efforts of teams of actuaries, squadrons of lawyers and the learned opinions of a clutch of top counsel, but today the board of Equitable Life published its long-awaited salvage plan. Policyholders are about to receive its proposals for a compromise between the different sections of the membership which, if accepted, will restore stability to the much-buffeted society.

The idea is deceptively simple.

Equitable Life holders with guaranteed annuity rates whose value keeps soaring with each cut in interest rates, landing the society with its problem, are asked to give up their guarantees in return for an average 17.5% uplift in the value of their policies.

In the other camp, with-profits policyholders who have no guarantee will have to give up their right to sue the society for misselling on the grounds that no one warned them about the potential GAR problem. In return they will get an average 2.5% increase in the value of their policies.

The huge difference in the increases reflects the fact that the guaranteed holders have a castiron case for their money whereas the with-profits group would have to fight through the courts and not all would win. The money to pay for the settlement will come from the [pound]1 billion of reserves already set aside and a further [pound]250 million from Halifax if the deal is agreed.

The board also spells out how gruesome the alternative is. If the deal is accepted, the society has a chance to return to normality, pursue a reasonably adventurous investment policy and gradually rebuild its fortunes.

If the compromise is rejected it will become a society at war with itself.

The ensuing litigation will drag on for years, the funds will suffer a death of a thousand cuts as people get fed up and pull out their diminished savings. …