Equitable Life will reduce final bonuses on with-profits from pension policies as part of an exercise to put the company on a more stable footing.
Following a detailed financial review, the company decided to reduce pension policies by 16% of the policy value as at December 12, 2000. In addition, there will be no growth on policies for the period from January 2001 to June 30, 2001. From July 1, 2001 the growth rate accruing to a policy during the current year will now be 6% per annum.
Equitable said the action was spurred by the drastic fall of stock markets over the last 18 months, the value of investments underlying maturing policies being significantly exceeded by maturity policies and the large number of policyholders currently retiring and taking their benefits.
The company said that it cannot keep adding to policies whilst the underlying FTSE investments have been falling.
Equitable will take account of the value of maturing policies compared to the value of investments underlying these policies. It said that if the value of maturing policies is too far above the value of investments, policyholders taking benefits now will gain excessively at the expense of all other policyholders. Equitable will reconsider bonuses regularly to take account of changes in the value of the with-profits fund.
Equitable chairman Vanni Treves said: “Difficult times require difficult decisions. We very much regret the need to reduce bonuses and the great concern this will cause policyholders, particularly after the disappointments they have suffered in the past year”.
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