The changes would mean a removal of the guaranteed annuity rate from certain policies, enabling Pearl to free up money that has to be set aside to provide for guaranteed annuity rates. Pearl can increase the current fund value of policies and the equity backing ratio.
The increased equity backing ratio gives the potential for higher returns over the longer term and this, combined with the increased current fund value, will offset the loss of guaranteed annuity rates, leading to improved retirement benefits for policyholders.
Previously, the policies have been restricted to fixed interest which hinders the potential for long-term growth.
The policies involved are individual pension policies, mainly issued between 1981 and 1994.
There is a risk that policyholders’ final pension income could be lower rather than higher if markets perform poorly or if future annuity rates are particularly expensive.
Mike Kipling, Pearl’s actuary for Phoenix & London, says: “Our calculations show that these changes can be expected to improve the future retirement benefits of our customers.”
The proposed changes would only apply to policies with at least 10 years still to run to retirement because this would provide sufficient certainty that the increased equ-ity backing will indeed produce a higher return.