Efforts to rescue Equitable Life, which closed its doors to new investors last month, are now seen as crucial to save the world’s oldest mutual.
The chairman of the National Association of pensions Funds, Alan Pickering says its aim was to stop the “haemorrhaging of clients” which would make any sale of assets less attractive.
“There is a danger in allowing too much time to elapse, because uncertainty will encourage predatory tactics,” he says.
“The shareholders of other fund managers would want the managers they employ to be seeking whatever advantage there is to be gained from the decline of Equitable.”
The Equitable Life Action Group wants the mutual’s board to put a proposal to policyholders with guaranteed annuity rates, offering them an up-front payment in return for restricting future pension income.
The guarantees continue to apply to future contributions as well, so Equitable’s liabilities are unquantifiable, and that has led to the 238-year-old mutual’s demise.
Equitable is owned by policyholders and accounts for about 10 per cent of the British pensions market The mutual has been the subject of friendly take-over discussions with numerous other financial services companies after Equitable ran into trouble with its pension plans.
The plans had been sold between 1957 to 1988 and included guaranteed annuity rates. These promised to pay double digit yields, but falling inflation and interest rate rises have made the policies expensive to honour.
Equitable tried to make the 90,000 policyholders of these plans pay for the guarantees themselves, but they took court action, which after numerous appeals, went against the company. This has created an unfunded liability of £1.5 billion, but other insurers say this could be much higher.
Prudential is the latest potential bidder to pull out of talks after months of negotiations. A spokesman for the company says the numbers didn’t stack up and pulling out was in the best interests of Prudential shareholders.
Equitable’s life fund has about 60 per cent of funds invested in shares with less than 40 per cent in bonds. The reversal of the investment strategy is expected to give equitable returns of between 0.5 and 1 per cent a year.
Equitable manages more than £34 billion on behalf of 650,000 savers, including 200,000 people with unit-linked pensions, which it is believed will not be affected.
