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Monday, 18 November, 2002, 08:26 GMT
Equitable Life 'could go under'
Equitable Life logo
Policyholders with Equitable Life must be prepared for the possibility that the insurer could go under, a financial expert has warned.

There's an increasing call within the industry that we should be looking to wind the society up now in a controlled manner before it goes insolvent

Tom McPhail, Hargreaves Lansdown
On Friday, the Equitable shocked its customers by announcing that people already receiving pensions could see their income cut by up to 20%.

The mutual society stressed that, despite its financial woes, it remained solvent.

But Tom McPhail of financial adviser Hargreaves Lansdown - which has helped many Equitable members transfer their pension funds to other providers - said the mutual life insurer was in real trouble, and that there was talk within the industry that it should be wound-up before it goes insolvent.

Desperate measures

On Friday, the Equitable wrote to about 50,000 holders of with-profits annuities to tell them that proposed cuts would "significantly reduce" their income.

Mr McPhail told BBC Radio Five Live's Wake up to Money programme that Equitable had, until now, attempted to protect these policyholders as they could not leave the society.

"The fact that they've now had to do this to these policyholders, to reduce their income, is indicative of the fact that they've got nowhere left to go," Mr McPhail said.

And he said Equitable's financial reserves were now wafer-thin.

"Looking through their accounts, just in the last six months we've seen the free reserves of the society fall from 1.1bn to 400m.

"Relative to some of the company's liabilities in terms of potential mis-selling claims that are still outstanding, and indeed the overall size of the with-profits fund, that's a very, very tight margin to be working on."

Controlled collapse

Mr McPhail warned of the knock-on effects of Equitable becoming insolvent.

"We'd be looking at long delays, more uncertainty, lawyers - lots and lots of lawyers - lots and lots of expense and it would take a very long time to unwind.

"Because of that, there's an increasing call within the industry that we should be looking to wind the society up now in a controlled manner before it goes insolvent."

Equitable's woes

Equitable's problems came to light when it found it could no longer afford to pay long-standing policyholders the pension they had originally been promised when interest rates were higher.

The policyholders took the company to court when it tried to back out of its previous commitments.

Equitable Life lost the court battle and was left with huge legal bills, as well as being forced to pay the policyholders more than it said it could afford.

As a result, it was forced to close to new business in December 2000 and sold part of its business to Halifax bank - now part of HBOS - last year.

Mr McPhail said there was no chance of another company stepping in to save it.

"The brand name is dead after the publicity they've had over the past couple of years," he said.

Your Comments

I am an Equitable Member. Like most who have trusted that company over the years, I really don't have the basis for knowing whether it's the end of the road for the Company or not.

But we who have:

  • In good faith provided for our old age making monthly regularly for years to a company with for many years a fine record and reputation.
  • Having had no reason over most of those years to suspect the Society was being mismanaged
  • Who have relied on Equitable to provide pensions in our old age and who have not jumped ship at the first sign of a storm

We deserve better treatment than we are getting and likely to get. We need a life-line offered to the company or at least to its customers for our peace of mind now and money that ought to be ours to support us in our old age. I would very much welcome comment from the industry and from the government on this matter.
Leon Redler, UK

The government and the regulators should step in now and end the misery of the policyholders. It should be placed into administration like Railtrack and wound up in a controlled way. The regulators should pay compensation to the policyholders because they have been negligent throughout the last decade. The Directors of Equitable Life have mislead the customers and the regulators should have prevented this from happening.
Tim Percy, UK

I believe Equitable should follow the path which results in the least cash loss and expenditure so that policy holders get the best deal possible under the circumstances.
Leo Hall, England

Why oh why haven't the authorities acted here? We're being told all the time to invest for our old age, but how can we have faith in a system that is so blatantly crooked?
Richard Nolan, UK

The disaster at Equitable Life is a bigger scandal than Maxwell. The one million plus policyholders have been comprehensively let down by an incompetent board, supported by highly paid auditors whose figures were a shameful deception, overseen by a series of regulators who have sat on their hands and provided no protection whatsoever to policyholders. To cap it all, the only recourse has been to a financial ombudsman who refuses to deal with any of the manifold cases of blatant wrongdoing, while everyone waits for Lord Penfold's confidential report to the Treasury, the very body which is the most culpable in this scandal. If this government has the remotest inkling of the distrust it has caused in the whole area of pensions it had better get its act together fast enough to tackle the huge injustice meted out to the Equitable policyholders if it wishes to rebuild that trust, before there is a total meltdown of voters willingness to save at all for their retirement.
CG Poulton, UK

I am still a member though I regret not getting out earlier. End of the Road? I think it's all up to the media. Another article or two like this will send it under.

I have no faith in the pensions industry nor in the government's ability to protect us. A guaranteed pension is not guaranteed. You are locked into an annuity but rates can be cut. You are powerless.

As it stands I will try to find another way to save for my old age, but I wish the government would bring in a COMPULSORY GOVERNMENT-RUN scheme that would allow us all to look forward to retirement with confidence.
A Blackwell, UK

I can see no other option but to wind the society up in a controlled way. Financial markets are uncertain enough at the moment so policy holders need some degree of certainty in order to plan for their retirement & adjust their strategy accordingly. The idea that another company could 'bail' them out is also a limited option because as it was pointed out in the above article the brand name is effectively dead.
Helen McQuinn, UK

I'm an Equitable with profits member and 20 years away from retirement, so maybe apathy is preventing me from doing anything, however, Hargreaves Landsdown have been mailing me repeatedly offering to "assist" in switching my policy. Obviously EL has given them access to my name and it is therefore hardly surprising that their "expert opinion" is that EL could go skint - maybe there's some motivation there to stir it up a bit?
Mark Massetti, England

I'm not an Equitable member and I normally don't believe in Government intervention, but here is a clear-cut example of where, despite everyone's best intentions, things have gone horribly wrong. If the government is really there to ensure the welfare of the British people, then surely they should step in here to prevent any further heartache and uncertainty for the Equitable members.
Alex, UK

I have a trust fund with another company which was invested as 10,000 4 years ago, and is now worth 7,000. I got a letter from them the other day offering me a cheap deal on Moet & Chandon! Enough said? The whole pensions / investment industry is going one way only.
JohnG, UK

I think the responsible industry persons should be forced to contribute all their personal wealth and assets to the pension fund (even though it would hardly make a dent to the overall problem), but it would mean that they don't get away with all the rewards and benefits due for doing a good job, because clearly they have not. These people should not be allowed to promise things and then weasel out of their commitments.. we know they wouldn't be slow to penalise customers if customers couldn't keep to their promises to pay the premiums!
Martin, UK

The Equitable scandal is only the tip of the iceberg. The whole financial services sector is so riddled with greed and corruption that there is no longer any incentive for individuals to save for retirement. We have seen shares crash, savings schemes dwindle. The safest bet seems to be to put your cash in several different bank accounts (in case they go belly-up too) to earn a modest interest rate. This government seems completely unconcerned that a wholesale meltdown is happening in the savings sector - if people panic and start to cash in their endowment policies whilst they can still get anything back, it will be as bad as the 1930's crash
Bob Dale, England

Those people locked into annuities by law have my sympathy. For virtually all with-profits investors - why are you still holding on? There is a one-way bet against you. If the fund drops in value, so does your policy, there is no money elsewhere to make up the losses. If the fund goes up in value, then the actuaries will reserve every last penny of profit to provide a safety margin and/or provide for the potential costs the ever-lengthening list of potential litigation. Either way, policyholders will at best stand still, and substantial further losses are a real possibility. Only those people with a very short time remaining to retirement or maturity of their policy have a reasonable hope of escaping without further damage to their finances. Don't throw good money after bad.
Neil Robertson, UK

After the initial revelations my main cause for anger has been the plethora of bulky mail shots, on glossy paper, telling of plans for suing former directors, rectification schemes, complex voting proposals and yet more gloom and doom. The new board seemed to spend their time attending cross-country meetings while we trapped annuitants knew that all this was our money being drained away. The government has a duty to step in before the lawyers gobble up the scraps.
James Curley, UK

I've been a financial adviser for over 20 years. Equitable Life are getting what they've always deserved. In the 80s they always saw themselves as better than any other company. They were proud to sell on the basis that they never paid commission. Big deal, their managers and salesmen were the best paid in the business, salaries and bonus rather than commission. I saw this coming 20 years ago.
Karl, Belgium

Surely there has to be some way of keeping our hard earned money out of the hands of the lawyers?
Des Grenfell, UK

I am an Equitable member but do not hold any hope of help from anyone! The MP's have voted themselves big pension increases and if nobody saves for a pension it will not be a problem for 20+ years, by which time they will be drawing their pensions and not caring. Forget any government help. They don't care
Alan Newton, UK

It would appear that all these companies can get away with murder. I have an endowment mortgage with Royal Life which is on track to pay out 12000 less than promised in a few years. That is unless things get worse.
Philip Ross, England

While this disaster continues, and the whole savings industry appears to lurch from one crisis to another, don't expect to see any end to the current housing boom. Who can blame people for wanting to put money in bricks and mortar, rather than financial institutions who continually let their customers down.
JJ Jackson, UK

I was fortunate enough recently to have transferred my money from Equitable to another pension provider. I had to pay large penalties and found it very difficult to find a provider who would accept any money transferred from Equitable. The whole process took some 8 months as they kept 'not receiving' documents etc and stalled long enough to ensure I paid even higher penalties. I now have no intention of paying any further money into any form of personal pension along with many other people my age group and shall worry about it in 25 years, or will retirement age be 80 then anyway?
S Lowe, UK

The entire financial services sector has become a greedy, bloated parasite on society. No entity can support this many parasites. The sooner the whole economy is re-focussed onto wealth-creation, instead of wealth-moving the better-off for all of us.
Tim Everitt, UK

I am 25 earning 35 000+ and have no intention of getting a pension policy in this country, the risk is too high and the reward too little. The rules insisting that I buy an annuity with it are ridiculous and not a form of government interference I am willing to accept for the tax break on contributions. I think I will simply buy property outside the country, or look at other long term savings vehicles. Then again I might just blow it and let the government deal with the problem if and when I reach retirement and find I am unable to support myself, why put money away and give up on things now if the net effect is the same?
Craig, UK

I'm 24 an at the moment have no intention of putting my money into a pension scheme. It would be a complete waste of money and I believe I would probably NEVER EVER get ANY of it back. Eventually as all the mismanaged pension scheme close up they will take all the cash with them. The only people who are better off from them are the greedy auditors and managers who should be stripped of their ill-gotten gain like other criminals.
Nathan Hobbs, Luton, UK

Luckily I bought property and feel very sorry for all of you who paid into pension funds. You have been misled and may have to work until you die. What a miserable existence. Surely the Government should step in.
David Taylor, England

At a time when the Government are trying to encourage people to provide for their own retirement and not rely on the state, they should help to stabilise these investors pensions. Mr Blair should stop gallivanting around the globe for a while and sort out some UK issues that effect UK residents.
Stephen, UK

What mixed messages we receive from Government! On the one hand we are being urged to make provision for our retirement privately and not rely upon a State pension. On the other we see a Government which is sitting on the sidelines seeing the very industry which they are recommending we invest in, go to the wall!
Ashwyn Smyth, England

The With Profits package that Equitable Life offered had no long term security in mind from outset, the whole fund structure had far too many guarantees which were costing policyholders from entry to the fund. The people who dreamed up the concept should be strung up.
Dr Allan Caholic, SCOTLAND

I was a Financial Consultant for most of the 90's. It was frustrating to spend time working out what clients needed to save to then have the potential sale go to Equitable Life instead of me because their Salespeople were not paid commission (they received a 'Bonus' instead!!). Unfortunately a number of people have been conned by Equitable's holier than thou image while the genuine Pension Providers have survived. At the end of the day the legislation and guidance we had to follow when showing people costs and potential returns was badly flawed, and despite it being obvious to us that it was wrong the FSA's predecessors continued to insist we wrongly informed customers of potential returns from their policies. It may have allowed companies to carry higher costs in the 90's but it's all come home to roost now...
Tim , UK

I am drawing a pension from Equitable Life. If they went into voluntary liquidation I understand my pension would be 90% of its present amount. Instead they seem intent on reducing my pension by 29% so if they then go into liquidation my pension will be 39% lower than it is now. It is very clear to me the company is insolvent and should go into liquidation.
Peter Moyes, UK

I am drawing a pension from Equitable Life. If they went into voluntary liquidation I understand my pension would be 90% of its present amount. Instead they seem intent on reducing my pension by 29% so if they then go into liquidation my pension will be 39% lower than it is now. It is very clear to me the company is insolvent and should go into liquidation.
Peter Moyes, UK

I fortunately bailed out of Equitable at an early stage in the crisis having not been with them long and have therefore suffered only small losses in real terms. The people I feel most sorry for are those who have been with them for many years and have reached, or are close to, retirement. The whole pensions situation is a disaster area that the government appears either unwilling or incapable of sorting out - perhaps because MPs are safe in the knowledge that their own final salary scheme will never be considered too expensive to run as it is funded by the taxpayer out of whom they can always squeeze enough extra cash to keep it fully funded!
John , Scotland

My first pension with Maxwell. Then a PPP which was the subject of a pension review which was successful, with the proceeds paid to...guess who?..Equitable Life. Am I just unlucky or will we all become victims of these pension scandals?
D.White, UK

Thirty years ago the collective liability of US pension funds exceeded the net worth of all real property on the planet! Little has changed in this respect in the meantime. The US congress patched some of the problem by extending the age at which one can retire. No solution is in sight, as the population ages and fewer are born to support the older generation. For the majority, there will be no pot of gold at the end of the retirement rainbow because 90 percent of the world's population will be forced to work until they drop dead.
Dr Charles Sanderson, US

Tom McPhail, Hargreaves Lansdown
"It doesn't look pretty"
The Equitable Life faces closure after losing a High Court case

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