Advisers have warned 400,000 Equitable Life members against ditching their with-profits policies as the closed-book life insurer prepares to boost payouts to people who leave.
Later this month Equitable will announce how it plans to distribute hundreds of millions of pounds of surplus capital created after the firm struck a deal with Legal & General to insure the liabilities of its defined benefit pension scheme.
Equitable Life chief executive Chris Wiscarson says the deal allowed it to free up around £200m in capital and, as a result, its surplus will be “significantly more” than the last reported figure of £580m.
This is likely to be distributed to policyholders through an increase in the 12.5 per cent enhancement they currently receive when their plan matures or they cash it in early.
Wiscarson says: “Our strategy is to give money back to policyholders. We need to discuss how we will do this with the Prudential Regulation Authority and the FCA and we will make an announcement at the end of March.”
Money Marketing understands an independent focus group study of Equitable policyholders raised concerns about a possible run on the firm if enhancements are increased.
Wiscarson says a large number of exits would actually improve the insurer’s capital position but warns policyholders could miss out on future distributions if they decide to leave.
Hargreaves Lansdown head of financial planning Danny Cox says: “A surplus distribution will make people think about their position but they should not simply rush into exiting.”
Investment Sense marketing manager Phillip Bray says: “Policyholders need to be very careful here. There is a risk the incentive of short-term gain will see people pull out of a fund that is actually right for them over the long term.”