Lords hear Equitable Life appeal

It's not the first time in the dock for pension providers

The future of the world's oldest mutual insurer, Equitable Life, hangs in the balance as it goes to the House of Lords in a long-running legal battle with 90,000 policyholders.

It is contesting an Appeal Court judgement in January which said the society had acted outside its powers in cutting pension payouts.

Equitable is expected to face a pension bill of up to £1.5bn if the ruling is upheld, although the insurer maintains the figure would be nearer £200m.

The Appeal Court overturned an earlier decision in favour of Equitable, which had been planning to cut final income bonuses on some pension policies.

The case was brought on behalf of those who bought policies with a guaranteed minimum annuity - typically £12,500 a year for £100,000 in pension savings.

The guarantees were made by many life insurers, but longer life expectancy and lower interest rates mean they are now much more expensive to honour than originally expected.

The appeal judges rejected Equitable's argument that it was trying to be fair to all its members.

The total cost of fulfilling the minimum pledges across the pensions industry is estimated at nearly £15bn.

Other life offices, such as Scottish Amicable, have paid out hundreds of millions of pounds to meet guarantees in pension contracts.

Funds doubt

Doubts have been raised as to whether Equitable Life would be able to fund the pay-out alone.

The company has assets of over £28bn and is estimated to have a market value of up to £10bn.

The case centred on "Guaranteed Annuity Rate" (GAR) pension policies widely sold between the 1950s and the 1980s by Equitable Life and other major life assurance firms.

But a shortfall in funding led Equitable to ask GAR policyholders to accept a cut in their bonuses or give up their right to guaranteed annuity rates.

Equitable was founded in 1762 and is UK's second largest life and pensions groups.