Equitable Life Assurance Society

Background to the Tyne and Wear Pension Fund and Equitable Life.

Why the Fund appointed Equitable Life

Due to amendments in the Local Government Pension Scheme Regulations the Tyne and Wear Pension Fund and all administering authorities of the Local Government Pension Scheme were required to provide an Additional Voluntary Contributions (AVC) facility. This allowed members to pay additional contributions to increase their standard benefits package.

In association with our legal and financial advisers the Tyne and Wear Pension Fund appointed Equitable Life Assurance Society to provide the in-house Additional Voluntary Contributions (AVC's) Scheme for the following reasons:

Equitable Life was founded in 1762 and is the oldest mutual life office in the world.
Equitable Life has no shareholders. It works on behalf of its members.
At the time they were appointed as the in-house AVC providers Equitable Life were the market leaders in the AVC field.
Equitable Life had a long track record of consistently high performance figures in all types of pension business including AVC's.
They do not pay commission to third parties for the introduction of business.
Equitable Life had the lowest ratio of expenses to premium income of all U.K. life assurance companies.
Equitable Life provided services to many public and private pension schemes.
Preferential terms were negotiated from Equitable Life for local government employees.

From February 1989 members of the Tyne and Wear Pension Fund were, therefore, able to enhance their standard pension benefits through the payment of Additional Voluntary Contributions (AVCs) to a policy arranged with Equitable Life Assurance Society.

This arrangement continued for many years with no cause for concern.

Outline of events over recent months

July 2000 The High Court ruled that Equitable Life must honour the bonuses that it promised to 90,000 policyholders with Guaranteed Annuity Rates (GAR) pensions. In response to the court ruling Equitable Life put itself up for sale.
Equitable Life with held bonuses to With-Profits policies for the period 1 January to 31 July 2000
Equitable Life imposed a reduction to early withdrawals from With-Profits Funds. This reduction is known as a Market Value Adjustment (MVA). The reduction is subject to change at any time and has fluctuated from 5% to 15% of fund value. The MVA is currently 10%, but could change at any time in the future.
There were no firm offers, therefore, on 8 December 2000 Equitable Life withdrew from the sale process. As a result of this, Equitable Life decided to close to new business with immediate effect (with the exception of group policies, such as the policy held by Tyne and Wear Pension Fund).
February 2001 Halifax Group plc agreed to purchase Equitable Life's non-profit and unit-linked business, its operating assets and sales force. With the following implications:
- With-Profits policies remain an Equitable Life product. The With-Profits Fund remains mutually owned by its policy holders
- Unit linked/Managed Fund policies remain an Equitable Life product, but have been re-assured by the Halifax.
- The Equitable Life Building Society Fund remains an Equitable Life product and contributions continue to be invested with the Nationwide Building Society.
- Life Cover policies remain an Equitable Life product.
A new company known as H.E.C.M (Halifax Equitable Clerical Medical) was formed as a result of the sale. It is responsible for the administration of the above policies.
At the time of the sale, the Halifax Group plc offered cash incentives to the Equitable Life With-Profits Fund. Certain cash incentives were dependant on satisfactory settlement between Equitable Life guaranteed and non-guaranteed policyholders.
To protect the With-Profit Fund, Equitable Life announced that With-Profit pension policies are to be reduced by 16% of the value at 31 December 2000 and that there would be no investment growth between 1 January 2001 and 30 June 2001.
The impact of the decision has made the Society financially unstable and it is seeking a compromise agreement with policyholders.
Under the compromise agreement GAR policyholders' policy values will be increased on average by 17.5% in return for giving up their GAR. Non GAR policyholders' policy values will be increased by approximately 2.5%, in return for giving up any claims they may have because they were not told when they bought their policies of the potential cost of GARs to the Society.
Details of the GAR compromise were put to policyholders. Policyholders were required to vote on the GAR compromise by 11 January 2002.

The Fund and GAR Compromise Vote

The Tyne and Wear Pension Fund policy is a group policy. The Fund is the named policyholder. Therefore, the Fund held the voting rights for the GAR compromise. The Fund was required to vote on behalf of its individual members.

Scheme regulations did not require the Fund to consult with members before casting its vote, however the Fund was required to seek advice from it's financial advisers.

Prior to voting, the Fund monitored the situation very closely, attended policyholder meetings and took guidance from its legal and financial advisers. Having taken everything into consideration, the Fund voted in favour of the compromise deal, as the only sensible way forward.

On 28 January 2002 Equitable Life announced that policyholders had voted in favour of the deal.

The impact on members of the Tyne and Wear Pension Fund Equitable Life AVC arrangements

With-Profits policies have no entitlement to a GAR.
All policies are under a group arrangement
The Equitable Life Society no longer accepts any new employer AVC contracts, although existing contributors may continue to pay if they choose to do so.
The Fund has appointed Prudential as an alternative provider following a rigorous selection process.
Advisers to Local Authority Pension Funds who have commented on future AVCs have recommended or indicated that no further payments are made into the Equitable Life With-Profit Fund for those policyholders who do not have GAR terms.

For the most up to date information on current situation with regards to Equitable Life Assurance Society you can visit the Equitable Life website at www.equitable.co.uk. Information on how the Equitable Life situation relates to members of the Local Government Pension Scheme can be found on the scheme's national website at www.lgps.org.uk/elas.htm

Prior to Equitable Life's problems the Fund was reviewing it's AVC arrangements. The Equitable Life situation accelerated the appointment of another in-house AVC provider, Prudential. If you would like further information on The Prudential AVC plan you may like to call the Prudential Pension Connection on 0845 6070077. Alternatively contact us if you would like a Prudential AVC guide sent to you or visit the Prudential's Local Government AVC website by clicking here.