Personal Finance

Few people view the Equitable with the same regard as they did three years ago

READERS OF this section who have long memories may recall that about three years ago, The Independent published a Guide to Pensions.

It was sponsored by Equitable Life, a company which had established an enviable reputation as one of the best-value providers of personal pensions in the UK. The company's value-for-money approach still stands. It still provides some of the cheapest products on the market. Yet few people view the Equitable with the same unconditional regard as they did just three years ago.

Why has this happened? To answer the question, one need look no further than this week's Equitable AGM. An annual meeting usually attended by no more than 50 or 60 members of the mutual society was instead packed by hundreds of angry members, protesting at the way their life insurer is being run.

The performance of some of its funds has slipped, causing significant disquiet among policyholders. Even more worrying is a dispute in which Equitable is embroiled over the issue of guaranteed annuities.

Years ago, in common with many other life insurers, the Equitable adopted the practice of selling personal pensions by offering a guaranteed annual rate of income (an annuity) to people when their policies matured. The guaranteed annuity was not significantly greater than the level of annuity then available on the open market. In the past three or four years, however, annuity levels have fallen significantly - a 65-year-old with a certain pension pot can only expect half the income available in the early 1990s.

For a number of policyholders, this meant dusting down their old policies and insisting that the guarantee is the level of income they want when their pension matures. Except that they have fallen foul of a neat stunt. Many of the insurer's pension policies are of the "with-profits" type, which means that they also receive a "terminal" bonus at maturity. So the Equitable has effectively said: "You want to tie us into a higher guaranteed annuity. Fine, we will. But that means we will claw back what we have to pay you by cutting your terminal bonus."

The issue, on which the Equitable is pitched up against almost 1,000 policyholders past and present, will be coming up before the courts in July. It occurs to me, though, that irrespective of the outcome, what Equitable is doing makes a nonsense of the word "guarantee". Its literature at the time never told policyholders that they had a choice - either the higher annuity or the risk (and possible reward) of a higher pension pot. The two issues were simply not linked.

What has happened is that a guarantee which Equitable thought would cost it little or nothing has come back to haunt it. If the courts find against the insurer, the judgement could cost up to pounds 1bn and place in jeopardy its independence as a mutual.

If Equitable was forced to surrender its mutual status, this would be a sad loss, of course - but cannot be a reason for those affected by the guarantees losing out. If they do, almost any promise given by financial services companies will be treated in as cavalier a fashion as is happening here.

What interests me too is the way Equitable is defending itself. Faced with a challenge by an ordinary member standing for election to its board, the company has become the Militant Tendency of the insurance industry. At the AGM, just before members voted on the composition of the board, the challenger asked all Equitable employees in the audience to stand up. A third of those present did so. Packing an audience: how humiliating.