Is this the end of the Equitable Life saga?

The long suffering Equitable Life with profit annuitants were thrown a lifeline last week, as the Prudential agreed to take on their policies.

62,000 with profits annuitants will see their annuities, worth £1.8bn, transferred to Prudential if the scheme gets the go-ahead, bringing to an end seven years of misery, during which these annuitants have seen their incomes slashed by more than a third.

The deal follows hot on the heels of the sell-off of Equitable Life’s non-profit annuity book to Canada Life, clearing the decks for the sale of its remaining £6.5bn with profit fund to another insurer as a run-off fund.

So what does this augur for the remaining Equitable policyholders who, despite the insurer being nearly brought to its knees in 2000, have not transferred their funds elsewhere?

With the Equitable with profits bonus announcement, due on 29 March 2007, expected to reveal further poor investment returns, one could be forgiven for thinking that any other insurance company could do better.

Equitable, which hopes to complete the with profit annuity transfer by the end of the year, is now expected to go into talks with closed life fund players such as Resolution, Pearl and Swiss Re.
Charles Thomson, Equitable’s chief executive, says he hopes to resolve the future of the remaining funds by the end of 2008.

In the meantime, the remaining long suffering policyholders eagerly await the publication of the Parliamentary Ombudsman’s report into the Equitable affair.
But judging by this administration’s recent dismissal of the Ombudsman’s report into the Government’s role in the demise of final salary pension schemes, I, as an Equitable policyholder myself, am not holding my breath.

The £800 billion UK pension fund industry should adopt sustainable investment and invest over longer time horizons as part of the fight against global warming, former US president, Al Gore, told a packed audience at the National Association of Pension Fund conference today.

Evidence of global warming, whatever its origins, abounds for all to see, but will company pension schemes be willing to accept possibly lower investment returns over the short term, in the interests of supporting environmentally friendly companies?

Gore sees short termism and the lack of incentives for investment managers to invest over longer time horizons (which he defines as a minimum of three years) as the major obstacles to the widespread embracing of sustainable investment by the investment management industry.

30 years ago, the average holding period of a stock by an institutional fund manager was seven years, whereas today it’s just 11 months. Furthermore, fund managers are under intense pressure to produce quarterly investment returns which meet, or exceed, demanding benchmarks or they risk losing valuable pension fund or insurance company clients.

So what is the solution to this conundrum? Mr Gore argues passionately that whatever the causes of global warming, the problem cannot be ignored and that to do so will cause damage to pension funds in much the same way as the rapid increases in longevity over the last 10 to 20 years has done to pension schemes.

Would you want your pension scheme to adopt sustainable investment and if so, would you lobby your trustees and scheme sponsor to invest in companies which operate in an environmentally friendly way?

Have your say by responding to this blog

Time to compensate the pension victims in full

I hear that Labour MP, Frank Field, has tabled a private member’s bill, calling for the victims of pension scheme collapses to be compensated out of the £2.6bn of unclaimed assets held in banks and building societies.

His initiative is a timely reminder that the 85,000 victims of collapsed pension schemes are still awaiting justice.

Shockingly, only around 1,000 of these people have received any help from the Financial Assistance Scheme (FAS) to date, even though the scheme was established three years ago to provide limited compensation to those who lost their pensions between 1997 and 2005.

Even those lucky enough to be eligible for help, (because they were within 15 years of their retirement date when their scheme collapsed), are only entitled to a maximum of 80 per cent of their core pension entitlement, capped at £12,000 a year - with no indexation or spouse’s pension.

To date the Parliamentary Ombudsman, a House of Commons Select Committee report, the European Court of Justice and most recently, the High Court, have all ruled that the current level of compensation is inadequate.

But Pensions Minister, John Hutton, has steadfastly maintained that the government cannot afford to increase the Government’s funding of the FAS because it would be a drain on taxpayers’ money.

Such claims ring somewhat hollow, given that barely a day goes by without reports of taxpayers’ money being squandered through mind-boggling government incompetence, ill-judged decisions and fraud.

The £12bn lost through VAT carousel fraud in recent years, the millions wasted on failed IT projects in the NHS and other government agencies, and the £4bn annual cost of an unpopular war in Iraq, spring to mind.

This is not to mention the £2.6bn which the Department for Work and Pensions managed to lose last year through incorrect benefit payments, made as a result of ‘error and fraud,’ or the £57m it managed to shell out to dead pensioners. Yes, it could afford to pay pensions to the deceased!

Pensions expert, Dr Ros Altmann, the indefatigable campaigner on behalf of the Pensions Action Group, says that paying the victims’ pensions in full would cost the government a mere £100m a year over 50 to 60 years.

The average, full pension entitlement for these people is £3,300 a year, compared to an average payout from the FAS of £1,800 pa.

If ever there was a cause which merited the use of taxpayers’ money, this is it. Most of the pension victims have worked all their lives and have paid their tax and national insurance. Some worked for the same company for 40 years.

If the government could afford to lose £3.17 billion last year in incorrect benefit payments, it can afford to pay some, or all, of this to the thousands of individuals who have lost their pensions and who now face real hardship in retirement.

If nothing else, such a gesture by the government might go some way to restoring some much needed confidence in pensions as it prepares to establish a national pensions saving scheme (due to go live in 2012) and to which it wants some 10m currently unpensioned individuals to sign up.