Equitable: The penalties

By DAILY MAIL REPORTER
Updated:

 

WHEN Equitable Life announced its cuts of 16% to pensions and 14% to other with-profits savings, the insurer implied the money would only come from promised terminal bonuses leaving guaranteed bonuses and capital safe. This is not the case. In fact Equitable Life is prepared to dig into both guaranteed bonuses and capital that people have saved in order to claw back the full 16%.

Robert Reid of independent financial adviser Syndaxi says: 'All future mass mailings from Equitable Life should first be checked by the Financial Services Authority to make sure this confusion can never happen again.'

So anyone who transfers their pension from Equitable Life will lose about a quarter of their potential pension fund. This is made up of the 16% cut in their pension, 4% lost growth from the first six months of this year and the 7.5% market value adjustor (MVA) penalty for leaving.

Anyone who invested £100,000 with Equitable last autumn would be likely to walk away with just £77,700, instead of having the £104,000 that could have been expected.

The penalty will also hit with-profits bond holders who may have invested as recently as last November. They will lose 14% of their money if they try to get their cash back now, so £10,000 invested will yield less than £8,000. Other savers in the with-profits fund are similarly affected.

The only way to avoid the penalties is to leave at specific dates. Those invested in with-profits bonds can leave after the fifth and tenth anniversary of investing. At these points any capital you invested and guaranteed bonuses should remain intact and you are safe from the 7.5% MVA penalty. But if you stay, Equitable can take money from the terminal bonus you earn between now and when you cash in your policy to regain the 14% it is taking from non-pension with-profit policies.

Personal pension savers will have to wait until they are at least 50 when they can take their pension without further penalty. Anyone over 50 who has just put their money in could, for instance, avoid losing money by immediate vesting - that is taking the pension now.

You don't have to buy the annuity from Equitable. Leaving it in place would be folly because any terminal bonuses awarded would be taken away as part of the 16% clawback.

Other pension savers are not so fortunate. Those with old- style personal pensions known as retirement annuities must wait until they are 60. Those who transferred occupational pensions to Equitable must adhere to the retirement age in their former scheme.

Next page: The role of the regulator

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