The world’s oldest mutual life company, Equitable Life, has closed its doors to new investors.
The mutual has been the subject of friendly take-over discussions with numerous other financial services companies after Equitable ran into trouble with its pension plans. The plans had been sold between 1957 to 1988 and included guaranteed annuity rates. These promised to pay double digit yields, but falling inflation and interest rate rises have made the policies expensive to honour.
Equitable tried to make the 90,000 policyholders of these plans pay for the guarantees themselves, but they took court action, which after numerous appeals, went against the company. This has created an unfunded liability of £1.5 billion, but other insurers say this could be much higher.
Prudential is the latest potential bidder to pull out of talks after months of negotiations. A spokesman for the company says the numbers didn’t stack up and pulling out was in the best interests of Prudential shareholders.
Equitable president John Sclater says it is sad day for the group.
“The board decided that closing to new business is the only realistic option now available,” he said.
“I apologise most sincerely on behalf of the whole board to members, policyholders and staff that this has come about. We remain committed to generating the greatest possible value from the sale of some of the society’s operations.”
As a closed fund, Equitable will have to reduce its investment in equities and increased its holding of bonds.
Equitable’s life fund has about 60 per cent of funds invested in shares with less than 40 per cent in bonds. The reversal of the investment strategy is expected to give equitable returns of between 0.5 and 1 per cent a year.
For investors this could take more than £5,500 off the projected maturity value of a £10,000 single premium policy over 20 years, reducing the fund on retirement from more than £32,000 to just over £26,500.
The 238-year-old mutual is owned by policyholders and accounts for about 10 per cent of the British pensions market.
Equitable manages more than £34 billion on behalf of 650,000 savers, including 200,000 people with unit-linked pensions, which it is believed will not be affected.
