Q&As for Equitable Life Policyholders

When you bought your With-Profits annuity the benefits depended on the performance of a large, growing, actively managed With-Profits fund with a substantial proportion invested in equities. Equitable Life is no longer able to provide that for you itself. This proposal will deliver that to you again.

Specifically for other With-Profits Policyholders (including trustees of pension schemes)

Removing the With-Profits annuities from the Society will improve the prospects of finding an attractive strategic opportunity for the remaining Policyholders. It will also remove the risk that the cost of paying the With-Profits annuities will increase (if the annuitants live longer than expected).

There will be no changes to the terms of your policy other than to substitute Prudential for Equitable Life and Prudential will take over the payment of your annuity. In particular, the minimum benefit levels guaranteed under the policy and any benefits for a spouse will be maintained.

Whether your annuity reduces will depend on the bonus rate anticipated in your policy and the bonus rates declared by Prudential - the higher the anticipated bonus rate, the more difficult it will be for investment returns to exceed it. Also, there are no guarantees where investment management is involved. We can say that because Prudential will have much greater investment freedom and an active investment policy, there is greater potential for higher bonuses than Equitable Life could provide. However, because of the riskier nature of assets such as equities, it is possible that investment returns, and therefore bonuses, could be lower than if your annuity had remained with Equitable Life.

No. Prudential will run the business at the level of charges no higher than that which Equitable Life currently uses. Indeed, Prudential has committed to maintain charges at no higher than the current level, whereas, currently, Equitable Life could increase the costs taken out of the policy. 

Former Equitable Life with-profits annuity business is written in our Defined Charges Participating Sub-Fund (DCPSF), whilst still benefiting from the investment performance of our With-Profits Fund.

The DCPSF is a separate Fund which is used by Prudential for business which has a fixed level of charges, and no exposure to any differences between the level of charges and the actual expenses of administering the business. Prudential's shareholders make a loss if the actual expenses exceed the charges or a profit if charges exceed actual expenses. Similarly, the Inherited Estate bears the risk that the actual cost of guarantees on these annuities exceeds the charge applied to cover the expected cost of guarantees on these plans.

The attraction of this arrangement for former Equitable Life With-Profits Annuity customers is that they do not share any of the expense or guarantee risk. The plans have a set charge of 1.0% per annum for administration costs and up to 0.5% per annum charge for guarantees. This is particularly valuable to policyholders given the current high cost of guarantees on these policies and the increasing administration costs per policy as the number of annuity customers reduces over time.

Unlike other With-Profits business that is written directly in the With-Profits Fund, former Equitable Life With-Profits Annuity customers benefit from 100% of the underlying investment performance as Prudential's shareholders do not share in the investment return. Former Equitable Life With-Profits Annuity customers also have no exposure to profits and losses on other business, and smoothing is carried out for these annuities in isolation with the aim that there are no aggregate smoothing profits or losses over the lifetime of all these annuities.

A special bonus may arise because the Society will no longer need the annuitant's share of the Society's Excess Realistic Assets. It will depend on values at the time of the transfer and other than to say it is not expected to be significant, it is too early to say how much might be available. We think the proposal would be right for With-Profits annuitants even if there is nothing available as a special bonus.

The Board has a duty to ensure that the terms of the agreement are fair to each group of Policyholder. The terms of the agreement will also be studied by an Independent Expert and we will publish his report in full.

The principle here is fairness to each group. The proposal is that the With-Profits annuitants should take their part of the Society's assets with them (about 20%).

Part of the Society's assets is retained to support the Society's financial position and is not currently used to support policy benefits. We call this amount 'Excess Realistic Assets'. The With-Profits annuitants are entitled to their share of the Society's Excess Realistic Assets, because we will no longer need it to support their part of the business. After allowing for certain costs, the special bonus is a simple way of allocating to the annuitants' policies their share of the Excess Realistic Assets. This special bonus, if any, is not expected to be significant. We cannot allocate Excess Realistic Assets to other Policyholders at this stage, because we still need those assets to support the remaining business.

Yes, but part of the With-Profits annuitants' share of the Excess Realistic Assets will be retained to compensate the remaining Policyholders for that effect.