The majority of the policies which would be included in any scheme are of this type. Some policies do, however, currently have an equity backing of 25 per cent plus 25 per cent in property and 50 per cent in fixed interest. For them, the change to the above asset mix would be of less impact but, nevertheless, still capable of adding value over time.
We will also continue to apply lifestyling for policies once they have less than nine years to run. This sees the equity and property proportions reduce steadily to half the above levels by the final year. This brings increasing stability to policyholders’ projected retirement funds. The increasing fixed-interest proportion also provides increasing protection against falling annuity rates, as the stocks held will be those typically used to drive annuity prices. This helps to mitigate removal of the GAR.
We are asking policyholders to reply by the end of October. If there is strong support, Pearl is likely to propose a formal scheme in 2009. What sort of support would we need? Well, if we are to successfully include all 50,000 policyholders, we would need to implement a scheme of arrangement under part 26 of the Companies Act 2006. This requires the support of at least 50 per cent of policyholders who voted by number and, more important, the support of at least 75 per cent of policyholders who voted by value of the GAR which would be forgone.
If we went ahead with a formal scheme in 2009 and we got the required level of support, then the changes would apply to all 50,000 policies, whichever way they voted and, indeed, even if they did not vote at all.
It is not unreasonable to ask why we would not intend to allow policyholders to opt out of the changes. This is because the scheme has been designed to have a neutral expected financial impact on Pearl’s shareholders. If an opt-out was offered, it is possible that it would be exercised by a subset of policyholders who were unrepresentative of the whole population, making the financial impact of the scheme unpredictable.
Nevertheless, we do recognise that some policyholders may be planning on retiring before the date stated in their policy. If their actual intended retirement date was sooner than 2020, the additional risk from the increased equity backing might not be appropriate for them. We therefore intend to allow these policyholders, if they want, to change the retirement date in their policy before the scheme goes ahead, so that they would be excluded from the scheme.
In addition to an expected increase in retirement benefits, our suggested changes provide additional benefits for some policyholders. Policyholders who are considering transferring their accrued benefits to another pension arrangement would be able to do so with an increased transfer value, effectively compensating them for a GAR which they would otherwise have had to give up for no value. A similar benefit applies to those who are interested in switching from with-profits to unit-linked in their existing policy.
Some policies, particularly contracted-out policies, offer a GAR only at certain retirement ages. At present, if the holder of such a policy wants to retire at a different age, he or she has to give up their valuable GAR. If our proposal goes ahead, these policyholders would have financial flexibility about when to retire or, from this month, transfer to a self-invested personal pension.
Policyholders who might be eligible for enhanced annuity rates also stand to benefit more than others. If, for example, they could obtain an enhanced annuity as good as the GAR given up, then they would, in effect, have a “free” enhancement to asset share and an increase in equity backing.
We draw out these special circumstances, and others, in the questions and answers booklet in the mailing pack, copies of which can be found on our website www.phoenixlifegroup.co.uk/individual.
Pearl is committed to seeking out opportunities to improve the performance of the policies in all the companies that it owns. These suggested changes are just one mani- festation of that philosophy, one which we hope both policyholders and their advisers will support. Most single-premium policiesMost regular-premium policies
current asset mixproposed asset mix