UK pensions giant issues Brexit warning to Irish clients
People who took out certain pensions and investments products with Equitable Life have been warned they may not get the terminal bonus they expect.
The company has written to policyholders, suggesting they might want to cash in their policies in light of the Brexit vote.
The company, that went bust in 2000, warned it may not be able to pay the bonus on with-profits policies because the British referendum on EU membership sent interest rates crashing. In a letter, Equitable chief executive Chris Wiscarson wrote: "There is little sign that interest rates are going to increase any time soon.
"Consequently, it remains a very real possibility that the 35pc capital distribution, payable at the time policyholders take benefits, may have to be suspended."
There are 1,400 people in this country who have with-profits funds. The bonus means an additional €350 for every €1,000 invested. With-profits funds are medium to long-term investments. They are supposed to provide steady returns without ups and downs associated with the stock market. They are managed by insurance companies with investor returns building up through the accumulation of annual "bonuses".
Mr Wiscarson said in his letter that policyholders were strongly recommended to seek independent advice as soon as possible. Speaking to the Irish Independent, Mr Wiscarson said he was not telling people to cash out, but low interest rates and rules known as Solvency II were causing havoc for the company's capital base.
"People would be grumpy if we did not warn them about this. We wrote to them in April and are writing to them again now," he said.
The warning only applies to those who have with-profits policies, and not those with unit-linked policies.
The with-profits capital distribution is getting hit because the funds are often invested conservatively in the likes of fixed-interest investments. These investments offer a return much more closely linked to interest rates, which means they not have performed that well in recent times when compared with the rise in value of equities.
There are thought to be around 6,500 Equitable Life policyholders in Ireland in total.
They have already incurred huge losses to their pensions, savings and investments, when the company went bust. Estimated total losses were close to €6bn for all the policyholders.
The British government announced in October 2010 that £1.5bn (€1.66bn) would be paid out to the victims and to the relatives of those who died waiting for compensation.
Equitable Life was once regarded as the best-managed private pension company in the UK. But it got into trouble in 2000 when it emerged that the company could not afford to pay guaranteed annuities.
Equitable was forced to honour guarantees made on older pension policies leading to cuts in the value of thousands of members' policies.
The Equitable Life Payment Scheme was set up by the British government in 2010 to compensate policyholders who suffered financial losses as a result of government maladministration in the regulation of Equitable Life.