Equitable Life

[Alaric]

This Company had a dedicated discussion board on TMF.

Back in 2000, there was a lot to discuss.

The final wind-up of the Company is documented at
https://www.dailymail.co.uk/money/news/ ... giant.html

Usually when Phoenix and other "consolidators" get involved, the residual with profits policyholders, if any, are allowed to run off their policies rather than have them compulsory transferred to either totally guaranteed or unit linked.

[richfool]

Thanks for that post Alaric.

Under the proposals, Equitable’s with-profits policyholders will switch to ‘unit-linked’ savings, which go up and down in line with the value of investments and do not have any guarantees attached.

My concern would be the switch to unit-linked, and perhaps at a time when markets are already high and due a correction or bear market. Policyholders might be further aggrieved if they switch and receive an uplift, only to then see it disappear in market falls.

[Dod101]

This Company had a dedicated discussion board on TMF.

Back in 2000, there was a lot to discuss.

The final wind-up of the Company is documented at
https://www.dailymail.co.uk/money/news/ ... giant.html

Usually when Phoenix and other "consolidators" get involved, the residual with profits policyholders, if any, are allowed to run off their policies rather than have them compulsory transferred to either totally guaranteed or unit linked.

Bear in mind that this transfer seems to have nothing to do with Phoenix Holdings. I expect the reason that these policies are being changed to unit linked is that there are no or few assets to back a with profits arrangement. The so called 'consolidators' mentioned by Alaric are usually picking up well funded life assurance portfolios that the seller wants to get out of for some reason or another and so the consolidator is simply taking on the admin for 'running off' these policies, that is looking after them until they mature, either by the death of the assured person, or surrender usually. The surplus investment funds backing the liabilities of the policy are then released as a profit to the consolidater. The whole point about the Equitable Life policies as I understand it is that there are insufficient funds to meet that obligation and so there are no funds or insufficient funds to transfer. Companies like Chesnara and Phoenix Holdings will therefore not be interested.

The proposal is that the liabilities are transferred to the policyholders by changing the arrangements to unit linked and handing the admin to another administrator, thus allowing Equitable Life to be finally would up. That of course assumes that the Daily Mail is correct.

Dod

[foolishdavid]

The details are now available on the Equitable website and a mountain of documentation has been sent to policyholders, along with a personal illustration. I found the illustration remarkably difficult to follow, but I think I've made sense of it. What I haven't decided is how to vote!

The proposal is to transfer nearly all the policies to a company called Utmost (previously known as Reliance Life), which is not exactly a household name! It seems that there will be a limited range of unit trusts available:

Multi-Asset Moderate Fund
Multi-Asset Cautious Fund
Money Market Fund
Secure Cash Investment Fund (used only for transfers)

If the proposals go through, there is expected to be an immediate 25% uplift in the value of your fund, although this is described as a 68% uplift in the non-guaranteed policy value (which is currently enhanced by 35% capital distribution). What is lost is the guaranteed increase in value of 3.5% p.a.

So my thoughts are as follows.

1. If it is intended to take an immediate pension, the unit-linked option is better.
2. If it is intended to hold the bulk of the assets for five years, it probably doesn't matter much (so why change?).
3. If it is intended to hold the bulk of the assets for 10 years or more, the guaranteed increase of 3.5% looks like it's better (so don't change).

There are three separate votes concerning the scheme, and the tricky one is getting 75% of the policyholders by value to vote in favour of switching. As I understand it, this is the value of the policies of those who vote (equivalent to the number of shares held). This is indicated on the voting form and is the guaranteed value of the policy. So if a significant number of policyholders with high-value policies vote against, the scheme may fail, even if 50% of policyholders by number vote in favour.

It's also not clear to me how the unit-linked policies will be managed in future. Will it be possible to switch into other funds held by Utmost, and will there be any penalties on switching to another provider?

One other thing that may not be clear: it is intended to increase the capital distribution from 35% to 55%, probably over a 10-year period, although it's not guaranteed. This in itself would give about a 15% uplift.

Thoughts please!

David

[richfool]

The details are now available on the Equitable website and a mountain of documentation has been sent to policyholders, along with a personal illustration. I found the illustration remarkably difficult to follow, but I think I've made sense of it. What I haven't decided is how to vote!

The proposal is to transfer nearly all the policies to a company called Utmost (previously known as Reliance Life), which is not exactly a household name! It seems that there will be a limited range of unit trusts available:

Multi-Asset Moderate Fund
Multi-Asset Cautious Fund
Money Market Fund
Secure Cash Investment Fund (used only for transfers)

If the proposals go through, there is expected to be an immediate 25% uplift in the value of your fund, although this is described as a 68% uplift in the non-guaranteed policy value (which is currently enhanced by 35% capital distribution). What is lost is the guaranteed increase in value of 3.5% p.a.

So my thoughts are as follows.

1. If it is intended to take an immediate pension, the unit-linked option is better.
2. If it is intended to hold the bulk of the assets for five years, it probably doesn't matter much (so why change?).
3. If it is intended to hold the bulk of the assets for 10 years or more, the guaranteed increase of 3.5% looks like it's better (so don't change).

There are three separate votes concerning the scheme, and the tricky one is getting 75% of the policyholders by value to vote in favour of switching. As I understand it, this is the value of the policies of those who vote (equivalent to the number of shares held). This is indicated on the voting form and is the guaranteed value of the policy. So if a significant number of policyholders with high-value policies vote against, the scheme may fail, even if 50% of policyholders by number vote in favour.

It's also not clear to me how the unit-linked policies will be managed in future. Will it be possible to switch into other funds held by Utmost, and will there be any penalties on switching to another provider?

One other thing that may not be clear: it is intended to increase the capital distribution from 35% to 55%, probably over a 10-year period, although it's not guaranteed. This in itself would give about a 15% uplift.

Thoughts please!

David

FD, Thanks for the update. Is there any definition or clarification about the unit linked sub funds referred to?

[foolishdavid]

Not that I can see, but I haven't read every word of the 220 pages of explanatory booklet B!

The Utmost website doesn't have any info either, though it promises to have soon, and the site is written in comprehensible language, so that's encouraging.

Do have a look for yourself, both at your personal illustration and the mountain of documentation!

David

[Alaric]

The Utmost website doesn't have any info either, though it promises to have soon, and the site is written in comprehensible language, so that's encouraging.

From https://www.equitable.co.uk/ProposalAug2019/index.html

Part one – known as the Scheme:

To increase With-Profits Policy Values with an immediate, one-off Uplift
Remove any Investment Guarantees, (including any guaranteed annual increases) and any With-Profits Switching Rights
Convert all With-Profits Policies to Unit-Linked Policies

What usually seems to happen when a Company is closed down and the business transferred to Phoenix or another consolidator is that the with profits policy holders are transferred into a with profits sub fund of the consolidator. In slightly different circumstances, that's what happened to the Equitable With Profit annuities on their transfer to Prudential.

What's slightly unusual is that it's proposed to make a compulsory switch to unit linked. As that seems to be happening under the Equitable name, presumably the choice of funds will initially be the Equitable ones.

This link is what holders are asked to complete for fund selection.

https://www.equitable.co.uk/ProposalAug ... 20Form.pdf

No doubt somewhere in the small print gives the default for non-responders.

[foolishdavid]

The defaults depend on age and look fairly sensible (see p105 of book B and elsewhere).

(a) Aged under 55 years: The Units allocated to a person of this age shall be in the Multi-Asset Moderate Fund only.
(b) Aged between 55 and 65 years: There is a gradual allocation from the Multi-Asset Moderate Fund to the Multi-Asset Cautious Fund.
(c) Aged between 65 and 75 years: Units shall be allocated to the Multi-Asset Cautious Fund only.
(d) Aged between 75 and 85 years: There is a gradual allocation from the Multi-Asset Cautious Fund to the Money Market Fund.
(e) Aged over 85 years: Units shall be allocated to the Money Market Fund only.

I am not convinced that the switch is in my interests if I don't want to cash in immediately, and I wonder whether other policyholders agree. It seems to be expected that schemes of this nature will be voted through pretty much on the nod, but I'm not sure about this one.

Secondly, if the switch does occur, I'd like to be able to choose from the wider range of funds available to other policyholders in Utmost, and to do so without having to bear extra charges. I suppose the cheapest solution might be to put the money in the cash park and then allocate from there, but I don't know if that will be possible. I might also want to switch to another provider, but that would be more trouble and probably more expensive.

It looks as though Equitable Life will be managing the funds on behalf of Utmost, so they may want a simpler solution. The proposed funds are not part of the current Utmost portfolio and seem to be created purely for Equitable customers.

David

[foolishdavid]

Thinking about this some more, it is at least plausible that Utmost will be creating three new unit trusts to hold the assets of Equitable transferred to them. If this is the case, it is unlikely that transfers out to other unit trusts owned by Utmost would be permitted, at least in the short term.

Is this how previous acquisitions have been handled, or do the transferred assets go into some general pot? The Equitable assets must be similar to those held by other life insurance companies, so they could be absorbed.

Simplicity of administration may be the driver rather than the actual assets.

David

[parallellines]

From https://www.equitable.co.uk/ProposalAug ... xnews.html

If the Proposal goes ahead, Unit-Linked Funds offered by Utmost will be invested jointly between Aberdeen Standard Investments (the Equitable’s current investment manager) and JP Morgan Asset Management. New funds that are offered by Utmost that were not available with the Equitable, such as multi-asset and corporate bond funds, will be invested solely with JP Morgan Asset Management.

We understand from Utmost that, worldwide, the percentage of JP Morgan Asset Management’s multi-asset and alternative mutual funds that are in the top two performance quartiles compared to their peers over 3 years is 82% and over 5 years is 91%.

Most of the JP Morgan Asset Management funds which are available for Scheme Policyholders to choose themselves (as opposed to those which form part of the Automatic Investment Option) are being launched in the UK specifically for Utmost.

JP Morgan Asset Management has similar funds in the United States of America that have similar objectives. We understand from Utmost that, based on those similar funds, indicative track records suggest that 6 of the 8 Utmost self-select funds would be in the top two performance quartiles over 3 years.


IMHO A transfer ban is highly unlikely.

[foolishdavid]

Thanks for this - useful information I hadn't picked up before.

[foolishdavid]

We now have more documents, and the choice of funds is wider than I initially thought (13 funds to choose from) and the investment can be spread over 1, 3 or 6 months. They are:

Multi-Asset Cautious
Multi-Asset Moderate
Multi-Asset Growth
Money Market
Sterling Corporate Bond
UK Government Bond
Managed
UK FTSE All Share tracker
UK Equity
Asia Pacific Equity
European Equity
Global Equity
US Equity

Choices have to be made by 13 December and will be disregarded if the scheme is voted down. Deadline for voting on the scheme is 30 October, and implementation starts on 1 January. Switching is allowed and is currently free of charge.

Still not sure I'll vote for it, but the options and explanations look reasonable.

David

[richfool]

I have no personal experience of this situation, but know of someone, in the 65-70 age bracket, who doesn't need to access funds currently, and who seems to think it preferable to stick with the current arrangements, because he will get the the 3.5% annual bonus. Is there anything that he is overlooking?

[Alaric]

Is there anything that he is overlooking?

A corporate desire to wind up Equitable in its current form. If they can get it past the Courts, I believe it will be compulsory

[foolishdavid]

I have no personal experience of this situation, but know of someone, in the 65-70 age bracket, who doesn't need to access funds currently, and who seems to think it preferable to stick with the current arrangements, because he will get the the 3.5% annual bonus. Is there anything that he is overlooking?

I'm thinking much the same thing, but I daresay enough people will vote for an increase in money now for the scheme to pass. I suppose the courts could veto the scheme, but I doubt it.

I got a postcard today reminding me to vote, so I'd better take another look, but there's no great hurry - plenty of time between now and 30 October for all sorts of things to happen

[foolishdavid]

Well, I voted against (and in favour of keeping the 3.5% annual increase)! We'll see what happens at the end of October...
David

[Blagdon]

For what it is worth, I also voted against. Mainly because I have no immediate need for the money.

[foolishdavid]

Hooray - notification of replies is now working!

I wonder if voting no will be a common reaction, or just that of a few geeks.

As an aside, I don't think my illustration is prepared correctly, and I sent a detailed response the weekend we got the illustrations. I finally got an acknowledgement last week, but no considered response. I reckon they've got tangled up with trying to adjust for inflation.

David

[nimnarb]

Just seen this...............long time unit linked holder now living in the States. Decided as pensionable age not to trust Equitable or any other lot going forward but take the money and run. Its not a lot..about 41K..orig investment 8K in 86. 25% I get tax free, the rest they taxed me around 12K, but as a non UK Resident, hoping to get this back from HMRC next year. Didn't need the money as such but just felt the time was right, for me US based, Brexit woes ongoing etc, etc, etc, plus who knows what the pound/dollar rate will be next year and there is no point me keeping excess funds in the UK, but wish everyone else all the best going forward...