Irish Equitable Life policyholders have been advised to seek independent advice on the compromise proposals from the UK insurer by the Consumers Association.
Equitable has issued a draft compromise plan in an attempt to appease guaranteed annuity rate (GAR) policyholders who took the company through the UK courts to force it to honour their guarantees. Uncertainty about the future cost of the GAR policies forced Equitable to close for new business last year and to pursue a low risk investment policy, which has resulted in lower returns for investors.
Equitable Life faces a struggle to win approval for the long-awaited package after revealing less generous compromise proposals than had been expected.
The troubled mutual said the 175,000 policyholders with controversial guaranteed annuity rate policies would receive an average 17.5 per cent rise in the value of their funds in exchange for giving up their right to higher pension income than is currently available on the market. The company had signalled that the rise in the funds could be around 20 per cent.
There are no Guaranteed Annuity Rate policyholders in the Republic - the product was not sold here. About 20,000 to 25,000 Irish clients bought Equitable pension or investment plans since the company set up in the Irish market 10 years ago.
Because a number of investors have already encashed their policies the company now has only about 16,000 non-GAR Irish policyholders.
Under the compromise proposals these investors are being offered an increase of 2.5 per cent in the value of their policies in return for giving up any claims they may have because they were not told at the time they bought their policies of the potential cost to the society of GAR policies already issued.
Mr Vanni Treves, Equitable's chairman, confirmed the mutual had received three different legal opinions confirming that policyholders might have potential claims, although they differed over their costs.
He said the society would defend any such claims and that the compromise was policyholders' last chance to end the "nightmare of uncertainty" over their pensions. "Realistically, there is no other place to go," he said.
Equitable Life policyholders have suffered lower bonuses and the imposition of early encashment penalties since the the company lost out in the House of Lords to its Guaranteed Annuity Rate policyholders. The ruling meant that the company had to honour estimated liabilities of £2.6 billion sterling (€4.1 billion) to the GAR clients. The compromise plan is aimed at crystallising liability and restoring stability to the £23 billion with-profits fund.
Equitable did not pay investors a bonus for seven months last year reducing an expected annual bonus of 8 per cent to 3 per cent. There is currently a 10 per cent market value adjustment - or early encashment penalty in operation, according to a spokesman at company headquarters in the UK.
Asked about complaints from Irish policyholders about difficulties in getting current encashment valuations in recent months, he cited "systems difficulties" and said members would get updated policy valuations in October or early November. - Additional reporting: Financial Times Service
