Apart from whether or not Howard Davies should be exhorting Equitable Life
policyholders to accept a one-off bonus in exchange for their GARs, the
bigger questions this raises are just why he should be making such
pronounce-ments and on what basis.
At least as long as two years ago, the DTI were well aware of the parlous
state of Equitable's solvency. The DTI cannot have failed to share such
crucial information with the PIA, who evidently chose to do nothing about
it, possibly because to do so might have been seen to be prejudging the
outcome of Equitable's court battle on the GAR issue. Also, by that time,
it was already too late to shore up a failing levee, so why try? A decision
was probably taken that if Equit-able's defence failed, it would be better
for the PIA to take the flak for having failed to take action and instead
throw its weight behind a fudge deal to make the best of an otherwise
intractable mess. That is exactly what is happening now.
The only way to determine whether or not a GAR policy-holder is likely to
be better off by accepting a one-off bonus is to see exactly what GARs they
will be giving up by so doing and whether or not their enhanced fund
projected to their planned retirement age will compensate for having to buy
their annuity in the open market. If such a comparison indicates they are
likely to be worse off, and let us not forget that the long-term outlook
for annuity rates is a continuing decline, then the recommendation has to
be to reject the deal.
While that may be contrary to what Halifax is trying to put together to
salvage the situation, it will very probably be best advice to the
individual policyholder. And, as always, who will pay for the work
inv-olved in undertaking such a comparison?
Partner, WDS Independent Financial Advisers,