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Equitable bolsters payouts

Equitable Life has earmarked £480m to increase payments to with-profits policyholders who leave the company from April 1.

The company, which has a total of 400,000 with-profits investors, has set aside 12.5 per cent of policy values, worth £3.8bn, as at December 31, 2010.

Equitable’s market value reduction of 5 per cent, which is levied on members who exit the scheme, has previously been a barrier to people leaving.

Earlier this month, concerns were raised in Money Mark- eting about how the levy would sit with FSA proposals to tigh- ten the rules governing MVRs.

The enhancement, which is not yet guaranteed, was revealed as the company delivered its preliminary 2010 results on Monday. Equitable says the increase “is above and beyond” payments promised by the Government and comes as a result of a successful rebuilding of its capital position.

The company aims to redistribute all assets, including its solvency capital, to with-profits policyholders “as fairly as possible” over time.

At the end of 2010, total capital amounted to £694m, up from £675m in 2009.

Chief executive Chris Wiscarson says: “We have done a lot of talking about recreating policyholder value. We are doing what we said we were going to do.”

Annuity Direct chief exec- utive Bob Bullivant says: “This is fantastic news for with-profits policyholders. I would imagine people who have battled for years to get to this stage are starting to believe the end is in sight.”

Equitable has abandoned plans to change back-office admin provider from Lloyds Banking Group to HCL as it looks to focus on releasing cap- ital to investors.
It will instead take direct responsibility for its own back-office. Lloyds will continue to manage Equitable’s IT platform.

In October last year, the Government committed to pay £1.5bn in redress to with-profits investors who suffered losses as a result of the problems at Equitable Life.
In January, the Independent Commission on Equitable Life Payments recommended that 945,000 non-with-profits ann-uitants should get payments equivalent to 22.4 per cent of their relative losses.

Around 37,000 with-profits investors will get full compen- sation for their relative losses while the remaining 100,000 policyholders who incurred relative losses will receive no payment because their pro-rata allocation amounts to less than £10.

Equitable Life redress – who gets what

  • £1.5bn – the total value of the Government’s compensation pot
  • £16,500 – the average payment 37,000 with-profits annuitants will receive as full compensation for their relative losses
  • 945,000 – the number of non-with-profits investors who will receive 22.4 per cent of their relative losses. Average payouts will be £820 each
  • 100,000 – the number of policyholders who will receive nothing because they incurred relative losses of less than £10
  • 12.5 per cent – the enhancement on policy value clients will receive if they leave Equitable after April 1, 2011. Around 400,000 with-profits policyholders are eligible for the uplift
  • £694m – the capital held by Equitable as at December 31, 2010


Matt Ward, Wealth management consultant, Defaqto

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