Mike Ryan, the IAP’s Director General, writes about our links with Equitable Life:
Very few members will be unaware of the disaster that has befallen the Equitable Life Assurance Society, which has been forced to close to new business. Equitable was Britain’s leading provider of pensions for professional people. Many IAP members (and many MPs) have pensions with them. This is particularly embarrassing for the Institution, as it is only a few months since we concluded an arrangement with Equitable, which we believed would provide virtually unbeatable stakeholder pensions for IAP members under a special group scheme.
The seeds of the problem were sown about twenty years ago when pension companies began selling with-profits policies where minimum profits were guaranteed. This was safe enough while inflation was high, because even investments that made no real profit at all could show a decent profit on paper. But now that inflation has fallen, and seems likely to fall further to European levels, those guarantees are looking madly over-generous. Companies will be struggling to honour them.
One of the great attractions of Equitable was that, as a mutual company, all its profits went to policyholders. It also had exceptionally low administration costs. But though it became clear some years back, when inflation started to fall, that guaranteed profit policies were a time bomb, Equitable continued to maximise the bonuses paid out to policyholders, when it should perhaps have been diverting more to reserves. To be sure it can honour its guarantees to existing policyholders, the company has now been forced to tighten its belt by closing to new business. Selling new policies involves big up-front expenses and does not benefit existing policyholders at all.
The Institution is not qualified to proffer financial advice, but we are concerned to reassure members who were encouraged to start pension schemes with Equitable as a result of the link we first formed with the company four years ago. If you are one of those members then you have almost certainly lost very little so far. Equitable is not expected to go into liquidation and it is expected to honour obligations to its existing policyholders in full.
The difficulty arises in predicting Equitable’s likely fortunes in the future. The guarantees must have first call on any profits so, assuming inflation remains low, it seems likely that the non-guaranteed policyholders (including anyone who joined in the last four years) will do rather worse. How much worse is a matter for speculation. If non-guaranteed policyholders began to feel they were doing a lot worse they would most likely withdraw their money. That would leave Equitable with less to invest, smaller profits, and even less for the other policyholders after the guarantees had been paid. It is a complicated picture. No doubt someone is writing a program!
However, none of this is going to happen in the next few months. Equitable’s policyholders include some of the most powerful people in the land and it is our opinion that within that period, possibly by the time your read this, it will have become much clearer how the situation can best be dealt with. After that we would recommend members to pay for independent advice from a pensions specialist.
Policyholders who have been investing for four years or less are probably not going to lose much by transferring to another company. The same cannot be said for those who have been paying in to our Equitable with-profits pensions for many years, or have even started to draw them! The large number of indeterminate variables makes it very hard to decide what best to do. It is certainly not a job for the amateur. Again, give it a few months for the dust to settle. Then take expert advice.
Paul Lynham FIAP, is the proprietor of Firmware Computer Systems. FCS has been writing commercial farm software since 1988, producing varied applications that are used in important aspects of herd management. The BSE crisis created a need for a cattle passport system, which he describes here, together with his company’s solution (called Herd Perfect!):
The British Cattle Movement Service (BCMS) allows transmission of cattle movements via X.400 and SMTP protocols as well as allowing for the application of cattle passports from cattle keepers or their agents. Our latest software is aimed at satisfying the requirements of keeping a herd register, the tracking of movement records and varied day-to-day tasks such as management of beef special premium and monitoring of livestock units per hectare for the extensification scheme. However, the program allows the transmission of cattle movements electronically, either individually or in batches, together with the ability to apply for cattle passports online.
The program comes in two versions, the first for farmers, smallholders and cattle dealers, while the second is specifically for those who administer legal herd requirements on behalf of their clients, such as agents or farm secretaries.
Firmware Herd Perfect has been developed using Delphi, for use on Windows 32-bit operating systems. Further details are available at www.FirmwareComputers.co.uk or I can be contacted at Paul@FirmwareComputers.co.uk.
Don’t forget to email eo@iap.org.uk with items of news about you or your company.
