'You bully'

By TOBY WALNE, CHIEF MONEY REPORTER
Updated:

 

EQUITABLE Life's new boss has been accused of 'bullyboy tactics' over his controversial decision last week to hold back annual bonuses - just before a vital vote on guaranteed annuities.

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The row was sparked by his open letter in national newspapers to the beleaguered insurer's 450,000 with-profits policyholders.

New chairman Vanni Treves wants the policyholders to vote for a compromise deal on guaranteed annuities that would draw a line under Equitable's financial crisis. The urbane Treves says in the letter that this year's bonus will not be paid in the normal way but will be tacked on to the final 'terminal' bonus, which is paid only if a policy runs to the full term.

The letter implies that annual bonuses may be resumed if the insurer wins backing for the deal on guaranteed annuities.

Action groups representing Equitable policyholders believe that by holding back annual bonuses, Equitable is strong-arming them into voting for acceptance.

If the deal is not accepted, Equitable has given no commitment to reinstating annual bonuses - leaving policyholders to rely more than ever on the terminal bonus.

The 238-year-old mutual wants the 90,000 guaranteed annuity rate (GAR) policyholders to accept a one-off cash payment in exchange for their legal rights to their guarantees.

Halifax, which agreed to buy the life office in January, has pledged to pour £250m into the closed with-profits fund if the deal is voted through. It handed over £500m last week.

For Treves to get his way, more than half of all Equitable members, including guaranteed and nonguaranteed policyholders, must vote in favour. Additionally, Yes votes must represent more than 75% of the total value of Equitable policies. If one class of Equitable member votes against, the deal is a non-starter.

Stuart Bayliss, leader of the Equitable Life Action Group, which first suggested the deal to Equitable in January, says: 'This is what we want, but we don't like the way Treves is trying to make it happen. Saying he is going to pay the bonuses if we vote the right way is like a red rag to a bull to policyholders. It shows the appalling lack of understanding the management has of Equitable members. They are simply using this situation as a carrot to get the vote through.'

Paul Harvey of independent financial adviser The Care Consultancy in Penshurst, Kent, says: 'This is nothing more than bullyboy tactics. It is shameful that the Equitable management should use such methods to try to strong-arm policy-holders into voting the way they want.'

He adds: 'The fact that they should withhold policyholders' rightful bonuses in an attempt to influence their actions is absolutely disgusting. It defies every principle of running a business properly.'

Equitable's decision to suspend the payment of annual bonuses was steeped in financial gobbledegook. In the open letter, Treves says: 'In March, the entire bonus will be allocated to your final bonus for the year, with nothing being allocated to the guaranteed bonus. . . If a compromise agreement on GARs is achieved, the fund may be better able to reserve against guaranteed bonuses without restricting investment freedom.'

Experts say the words are a thinly veiled threat to all with-profits policyholders that if they want their bonuses they had better vote in favour of the GAR policyholders getting a one-off cash payment. The amount is yet to be decided. This decision also covers bonuses due for the period from August to December last year.

Equitable members have already been told they will get no bonuses for the first seven months of 2000 following last year's Law Lords ruling on guaranteed annuities. Equitable was ordered to honour bonus pledges to GAR policyholders, landing it with a £1.5bn bill and plunging it into crisis.

On Friday, Equitable said it was not trying to bully policyholders into voting one way or the other. Spokesman William Clutterbuck said: 'If we were to increase the guaranteed yearly bonus, we would have to reserve against this, which might lead to lower growth for the policies. This is why we have decided to add to the final bonus this year rather than the guaranteed bonus.'

Equitable has further infuriated members by picking former Scottish Widows deputy chief executive Charles Thomson as its new chief executive to replace Chris Headdon, who has been sidelined after only two months in the hot seat. Treves has described Headdon as 'tainted' for his role as Equitable actuary when the crisis blew up. Headdon will now be given the task of ensuring that the Halifax takeover of Equitable's administration runs smoothly.

As an actuary, Thomson, 52, came under fire at Widows when the Edinburgh-based life office also faced a guaranteed annuities crisis. He was forced to leave last year when Lloyds TSB bought the insurer. Harvey said: 'I find it alarming that Charles Thomson, the new captain of the Equitable ship, should be someone who was embroiled in a guaranteed annuities crisis at Scottish Widows. It typifies the whole mentality that has caused Equitable's downfall.'

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