Page last updated at 11:28 GMT, Thursday, 15 March 2007

Pru 'rescues' Equitable policies

Equitable Life
50,000 policyholders now have some good news

The Prudential insurance company has come to the rescue of 50,000 policy holders with the stricken Equitable Life pension company.

The Pru is buying up Equitable's with-profits annuity policies.

Under the Pru's control these pension policies should benefit from higher investment returns in the future.

Pensioners with these policies saw their pensions slashed after the Equitable narrowly avoided insolvency in 2000 when it shut to new business.

'Major success'

"The proposal, which will benefit all policyholders, to transfer with-profits annuity policies to Prudential is a further major success arising from the Society's ongoing review of strategic options," said Equitable chairman Vanni Treves.

"The board has been very conscious of the particular difficulties faced by with-profits annuitants and we are pleased to have negotiated this excellent proposition for them," he added.

The deal will require a vote among Equitable policyholders as well as court approval.

The assets of the policies that are being bought amount to 1.8bn. The pensioners - who hold 62,000 with-profit annuity policies between them - have an average age of 74.

With-profits annuities

The original idea behind these policies was that once the customers had taken an annuity - an annual pension - from the Equitable, the income would not be fixed but might rise.

They will become part of an actively managed fund, which is one of the largest and strongest in the UK
Charles Thomson, Equitable Life

That was because they would benefit from future investment returns as their money would continue to be put into a broad spread of investments, rather than just in bonds.

However, the financial crisis at Equitable forced the company to cut the payouts on these policies by 20% and change the underlying investment strategy so that most of the money was invested in fixed-interest bonds after all.

Equitable said this meant its customers with these policies faced shrinking cash payouts each year.

Now, under the umbrella of the Prudential, the funds can be invested more adventurously with the prospect of greater returns and thus higher and increasing payouts to the policy holders.

"They will become part of an actively managed fund, which is one of the largest and strongest in the UK," said Equitable chief executive Charles Thomson.

"It will also help us in the search for the best strategic solution for the remaining 80% of policyholders," he added.

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