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Take a bonus or stick with GAR?

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&#39s 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&#39s 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&#39s 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?

Julian Stevens

Partner, WDS Independent Financial Advisers,

Kingswood,Bristol

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