ca

Am I missing something here?

EL issued certain guarantees to policyholders but then went to court to get out of paying such guarantees. And lost.

Looking at the story at face value, it looks like EL have only themselves to blame.

C

Nimbus

The 'blame' lies in lower than expected interest rates and returns for those policy holders. So EL tried to say that it had a right to withdraw the guarantee. The policy holder appealed and won. So now EL are on the lookout for a company to buy them so thay can payout these guarantees.

And the reason I know this...

I have a pension with them. Though not my only one...

Dave T-S

That's the beauty of a mutual. There's X amount of money in the pot. They guarantee to pay Y, and if Y exceeds X then there is a shortfall. Who makes up the shortfall - AHA - with a mutual, the members!! The court decided the members didn't have to make up the shortfall (i.e. take a lower guaranteed figure) so technically they are insolvent - liabilities exceed assets.

If the people that voted to screw Equitable in the courts actually understood the concept of a mutual, they would have realised they were shooting themselves in the foot. Who's sorry now?? And no, I do not have a EL policy - I just work with mutuals.

ca

Dave T-S,

Who gets the excess if X exceeds Y?

C

Dave T-S

With a mutual, it goes back into the fund for the benefit of the members.....nobody complains when it goes in this direction...

sunilp

Yeah but when X >Y, it goes into the pot, and hoepfully will get distributed to the members. Witness AXA Sun Life trying to rip members off over the orphan estate. Not anywhere near enough of the pot gets distributed in terminal bonuses for the more loyal, longer term, members

Equitable are (were?) crap anyhow, said they had low charges but then paid all their highly intelligent salespeople loads of commision anyway without a performance to back it up

Sunil

PeteT

My wife has had a pension with EL for about 8 years, any advice about what she should do?

HunterB

I've got a bit of my pension with EL (set up by previous employer). I'm told they'll be writing to their policy holders soon to let them know what the situation is. They were forced to stop selling new policies last week so, as Dave T-S says, I suspect they're insolvent. Anyone know if there's an industry-funded pool to help out people who might lose their money?

sunilp

You should both seek Independent Financial Advice from a good IFA and also write to the PIA.

Sunil

Dave T-S

HunterB
There is the Policyholders Protection Board - can't remember if they cover life policies or not.

Try the ABI (Association of British Insurers) website first for info.

Whilst Equitable may be technically insolvent they will not file for insolvency - they will just come to an arrangement with their creditors (i.e. the members) to pay them X pence in the pound from whatever available assets there are. You can buy out now - but at a penalty.....

The Equitable sales force will go soon - an expensive asset they do not need - and if the company cannot be sold (which I doubt now) then they will go into run-off - effectively they have already. I cannot see the point where they will ever go bankrupt, but will just pay all policies at a discount.

sunilp

Dave, i'd never thought i'd say this but youre really not as stupid and ignorant as everyone would make out

HunterB

Dave,
Thanks for the notes and the guidance.

Sunil,
With the benefit of hindsight and recent experience, how do I find a GOOD and INDEPENDENT IFA?

Dave T-S

Sunlip
Just stop that right now.....what are you trying to do to my Muppet street cred

Dave T-S

Hereunder is the Equitable press release....

THE EQUITABLE LIFE ASSURANCE SOCIETY

NOTICE TO POLICYHOLDERS

The Equitable Life Assurance Society announced on 8 December that it had stopped writing new business with immediate effect. The Society remains solvent and will continue to payout benefits and accept premiums under existing policies.

It had been hoped that the entire Society could have been sold in a way which would have restored the loss of growth announced shortly after the House of Lords' ruling on Guaranteed Annuity Rate policies (GARs) in July and which would have restored the capital strength of the life fund. Unfortunately this has not been achieved.

What does this mean for policyholders?

 Closure of the Society to new business leaves the existing with profits fund and existing unit-Iinked funds intact. Regrettably, however, the loss of growth in with profits policy values from I January to 31 July 2000, which arose from the need to pay for the estimated costs of GAR policies, is unlikely now to be restored.
 All policyholders' benefits will continue to be paid out in line with the contractual obligations under their policies.
 Growth will accrue to with profits policies in the normal way in line with the investment performance of the with profits fund. This investment performance is now likely to be impaired by the fact that the with profits fund will need to be invested to a greater extent in bonds and gilts rather than equities which historically have generated higher returns in the longer term.
 Unit-Iinked funds are invested separately from the with profits fund and therefore the investment strategy for these investments will be unchanged as a result of the Society's closure to new business.
 The Board has no reason to change its best estimate of the likely cost of the GAR liability arising frol11 the House of Lords' decision, however. the actual cost of the GAR liability could be more or less depending on a number of factors, most importantly future interest rates. Were the actual GAR liability to, exceed the current best estimate, there would need to be a further transfer of value from non-GAR policyholders.

Advice for policyholders
The Society will not write new business but will continue to accept premiums that policyholders make under existing policies and issue new policies arising from options under existing policies (such as the purchase of an annuity at Dent).
You should consider your individual circumstances when considering whether to pay additional premiums into any existing policies. If you have a with profits policy, you should consider the impact of the likely lower investment returns on your savings over time. You need to take an early decision only if you have taken out a policy within the last fourteen days, or pay regular premiums or have an option to make additional payments within the next few days.
If you have taken out a policy within the last 14 days, and are therefore within the statutory cooling off period, you have the option of cancelling this policy. The Society will extend this period to 22 December 2000 to allow you time to consider the impact of this announcement.
If you require advice on what action to take please contact your usual Equitable representative at your local branch or telephone 0870 900 8020. For general information please telephone 0870 600 2272, or access the Society’s website (www.equitable.co.uk).
We will be sending policyholders a letter as soon as possible containing more information.
The Society's President. John Sclatet; said:
“It is a very sad day for all in the Society - members and staff - but the Board decided that closing the Society to new business is the only realistic option now available. The intention of the sale process had been to make good the transfer of value from non-GAR policyholders which resulted from the House of Lords' judgement. In the event, this loss of value is unlikely to be restored to policyholders."

“I apologise most sincerely on behalf of the whole Board to members, policyholders and staff that this has come about. We remain committed to generating the greatest possible value from the sale of some of the Society's operations and providing the best possible service to policyholders."

JoeyDeacon

HunterB,

Even finding a truly independent IFA is difficult as you have to remember that they will be getting commision from the company they recommend you to go with. With a pension this will be about £500 (Not bad for an hour or twos work) and they will also get a small commision every year. The only way you can get truly independent advice is if YOU are paying the IFA instead of him getting a commision from the pension company.

If you want to take out a personal pension (i.e with no contributions from your employer) I would do as much investigation as possible as you can before you commit yourself (You do have a 14 day cooling off period though) Bear in mind that due to charges a lot of these pensions are not even worth the money you have paid in until 7-10 years. Also with people living longer there are going to be a hell of a lot more people receiving pensions than there are today. When you pension has matured you can either take a quarter as a cash sum and use the rest to buy an Annuity or alternatively use the whole sum to buy an annuity. The trouble with this is the rate of return you get on this annuity (your pension basically) depends on your estimated life expectancy, so with people living longer this is only going to get worse (i.e lower return on your annuity = lower pension) Oh and remember you pay tax on your pension too!!

If you want decent impartial (free)advice I recommend looking at

sunilp

oh, and everyone else works for free, dont they?

an employer can contribute to your personal pension. No point in having a company scheme unless you intend to stay with them for at least 3 years....which most people dont in todays dynamic climate. At least a PPP can remain with you throughout your entire working life and retain momentum and continuity thereby maximising the fund growth

Do you realise the costs of compliance and legal redress you have against a IFA if he is negligent?.

Also would you rather pay 500 notes indirectly from a fund on which you get tax relief or directly out of your pocket after having paid tax and NI on it?

7-10 years to break-even, not with charging structures nowadays i'm afraid.

oh, and dont forget you get tax relief on pension contributions now at your highest marginal rate, which may be higher than the rate of tax you could be paying in retirement

oh, and dont forget that you should aim to build up a large a fund as possible so regardless of annuity rates, you wont be on the breadline due to a couple of percent shift in rates which are still real due to relative inflation levels

oh, and we dont know what the pension rules will be in future and whether annuities will even be a compulsory purchase on retirement, but at leat by doing so the fund is protected so that the owner gets a life income and doesnt **** it up the wall in a couple of years!

If all else fails and you are a complete sceptic then go become a fund manager yourself or avoid any external investment as there's always a little something in it for someone else.....please!

JoeyDeacon

And this is coming from a guy that admits in another thread that he has (had??) an endowment policy..

Not being nasty or anything but this is a good topic or conversation!

So Sunil just how much do you suggest I have in my pension fund so that when I come to retire in 38 Years time I am not having to buy my food from the Tesco's reduced section?? Also how much would I have to pay each month to get this sum??

Also as for people working for free, I was just making the point that you are more likely to get impartial advice if YOU are paying the IFA his fee and he is not getting it from the company he recommends you too thats all!!!!

[This message has been edited by JoeyDeacon (edited 13 December 2000).]

Yex

Hunter,

If you want to talk to an experienced Financial Advisor have a look at

sunilp

Joey, i have an endowment, in fact i have 2, one split for my mortgage and the other to make a reasonable sum should i decide to move again. I also have funds in PEPS, ISAs and Unit Trusts that could pay my mortgage off right now - but as long as they keep performing more than the 7%(before adjusting for tax) i pay on my mortgage interest then i have no intention of paying the mortgage off. The endowment covers the mortgage liability and my death/criticall illness and the capital in the UTs is all mine. When the endowments mature, then that will be my money tax free too (remember also if you are a 40% tax payer then an endowment only pays tax internally at 20% and no further liability on maturity) so there arent a lot of other safe, tax efficient homes for your long term money. My firm of IFAs are headed by 2 individuals with over 70 yrs experience in the Financial Services Industry and they have never ever seen a 25yr endowment from a reputable company generate a shortfall against the projected value.

The scandal was this, in the 80s the housing boom was going mad, you could buy a house and sell it at a huge markup within a week. Everyman and his dog was an instant "property developer". This had a few implications, the first being that a lot of people could suddenly afford to move house but didnt have enough funding in place to pay the new (bigger) mortgage. They were also of the older generation and their existing endowments were coming to maturity within 10yrs or so.
The second thing was a lot of it was pre 1986 Financial Services Act so much of the industry was unregulated. Now you know what happens when things arent regulated.
So, these people were sold short term (i.e. <15yrs) endowments with bullish growth rates (given the interest rates and pace of economic growth and RPI that was prevalent at that time) to top up their existing ones.

Now an endowment isnt suitable for such a short time period anyhow and also two major economic events happened betweem 1980 and 1990 which wiped out most of the fund values, one was the Gulf Oil Crisis and the other was the Stockmarket crash. This meant that the endowments couldnt recover in the short time period they had to maturity as the insurance companys indirectly invest the underlying funds in the stockmarket. Couple this with the fact that the bullsih rates used could not be sustained due to economic slowdown and it was a recipe for disaster. THIS IS MAINLY WHY ENDOWMENTS GOT A BAD NAME. The other is just people being sold them by door to door ex-hairdressers at bullish rates of in excess of 12% (good endowments have historically returned 13% pa over 25yrs and less over shorter timescales due to lower terminal bonuses). Obviously using a higher growth rate assumption means that the premiums appear lower and the salemsman wins the business (it also means he gets less commission than a higher premium at a lower growth rate to acheive the same target)
The same problems can arise with any investment, witness the mass of technology funds launched last year in the boom, most newcomers who invested only then are now nursing heavy losses!. A few months back the front page of the Sunday Times Finance section had a story about a nurse who invested 18k into ISAs and Unit Trusts in one lump sum and was now showing how much she'd lost. Well, she was stupid enough to commit so much capital in one transaction so what do you expect?, she had used a discount broker who offered no advice, so for the sake of that she was now in the red!. A good IFA would have advised her to drip feed her investment to take advantage of pound cost averaging.

Anyhow, back to your question, the key is time of investing is not just how much you put it, but more importantly when you start, 5yrs makes all the difference....too many young people saying "i want to enjoy myself now and i'll worry about all that later"
Remember capital is hard to accumulate, but once you do, it rolls up very quckly, consider a growth rate of say 15% pa, this means that your money will double every five years, i.e. compounded 15% pa for 5yrs is 100%.

So lets say your 25 yrs old now and you have 5k to invest. You want the money at age 50.

Age Fund Value at 15% pa
25 5,000
30 10,000
35 20,000
40 40,000
45 80,000
50 160,000

So, 2 kids have 5k each at 25, one has 4 tropical holidays a year with it and the other invests it and has a weekend in Skegness instead. At 50, say retirement age (face it, there aint gonna be many jobs after 50 due to techonolgical change etc so if you cant afford to retire early then you might be stuffed)
One kid has 160k, the other who still put 5k but did it five years later at age 30 instead only has 80k. It hasnt cost him 5k, its cost him 80k!!!!!!!!! This is why so many people in the UK cannot afford to retire early and then are in trouble when they get made redundant before 65, they left planning too late. You need to be able to retire early enough to enjoy it too, 50 is an ok age as long as you have enough cash. Remember retirement is the biggest holiday of your life, and whats the first thing you make sure you have enough of when you go on holiday? - MONEY!!!!!

Back to the first comment, there is nothing wrong with an endowment from a reputable company using realistic growth rates and if you can keep it going for at least 20 years. It would appear that everyone who reads the same old Sunday paper crap is on the endowment slating bandwagon. If you speak to people who know you will find most endowments maturing at present that have had 25 yrs to run are paying out at least 30% more than projected and five times sum assured (and sum assured basically equates to premiums invested over the term). They are fine as part of a balanced portfolio, bonuses are added every year and fund value doesnt go down, unlike unit trusts and shares. You need to spread money around and have a basket of eggs - too many people are greedy and want only the star numbers - they will get their dreams shattered sooner or later without doubt.

With regard to your pension, the first rule is invest as much as you can now, max 17.5% of Net Relevant Earnings for those under 35yrs (this helps if you have to cutback later due to other commitments) the other basic rule of thumb is that for every 1 thousand pounds you want per annum at retirement, you need to invest that amount between now and then. For example, if you want, say, 30k per annum at retirement then you should aim to invest 30k between now and then. Of course people will say "what is the value of 30k" in 30 years time, that is a silly question as, although the time value of money is important, your premiums are also invested in an ever decreasing time period. So, say you were told to invest 300 a month now to get 30k pa (based on todays annuity rates) at age 50 then although the 30k wont have the same value at age 50, neither will the 300 per mth that you invest between now and then, more so as you get closer to retirement. This means you will invest more than, say the 300 per mth, as time goes on thereby automatically helping to ensure that your pension remans REAL - couple that with the fact that you should aim to invest in a unit/investment trust based fund and you will further ensure that the growth remains real by hopefully having an annual average investment performance that outpaces the RPI, the earnings index etc.

Laters

Grandad Sunil

[This message has been edited by sunilp (edited 13 December 2000).]

Blow Dog

sunilp

watchya sayin?

Dave T-S

Sunlip
....i'd never thought i'd say this but youre really not as stupid and ignorant as everyone would make out

sunilp

seems like i killed the conversation though?

JoeyDeacon

Sunil,

So after paying into a pension for 40 years do you think it is good that you have to use this money to buy an annuity?? Admittedly you can choose to take 25% as a lump sum and use the remaining 75% to buy the annuity but this is still your money you are not able to touch. Now I know you are going to say that this is good because it means you are not able to fritter the money away as you can't touch it, but if you don't have the self control to not just blow it all then you really do have a problem.

If halfway through your pension you decide to cancel it you can't even get access to the money you have paid in you have to freeze the fund until you retire!! Seems a bit of a con to me!

Also the charges you have to pay on a pension are ridiculous, OK lets forget about the commission the person who sold you the policy gets and move onto the annual management fee which can be as much as 1% a year. If your fund is worth £500,000 (which it might well be in 40 years??) then they are going to take £5000 a year!!

I know that the idea of a pension is to build up enough capital to allow you to effectively live off the interest but I would much rather have access to the capital as well!! Once you die your family are going to get nothing!!

So to summarise a pension is hit with an annual charge for effectively doing nothing and once the pension comes to maturity you have to use the accumulated fund to purchase an annuity and you have no idea as to how well it will perform (and hence the pension you will receive) until the day you buy it.

So you still trying to tell me that a pension is a good idea??

Here are some current annuity rates (01 December 2000) that you would receive for a fund that is worth £100,000 today if you retired at 65 and were male and single.

Company Rank Annual Sum
Sun Life 1 £9 092
Prudential 4 £8 970
Equitable Life 7 £8 639

Don't forget this is not linked to inflation (so in relative terms is worth less each year),you have to pay tax on this ammount and you can't touch the £100,000 in your fund.

For an Annuity linked to the RPI (retail price Index) the returns are even worse.

Company Rank Annual Sum
Legal & General 1 £6 829
NPI 4 £6 647
Equitable Life 7 £6 268
GE Life 10 £5 250

So you still trying to tell me that a pension is a good idea. I could stick this money in the bank, still have access to it and get almost as good a return.



[This message has been edited by JoeyDeacon (edited 14 December 2000).]

ca

Weren't the Tory party looking at scrapping the requirement to buy an annuity come retirement?

C

sunilp

Joey, you obviously seem to already have a chip on your shoulder and it would appear to me that whatever i say you wont change your opinion.

Please remind yourself of a couple of things which i have already stated

1) A pension should be part of a balanced portfoilio, along with bank deposits, ISAs etc. These will allow you to have access to and sqaunder your capital

2)Why would you want to cancel?, you have to retire and you will grow old. It is coming so why avoid it? Do you really think this crummy State will provide a life income for you?

3) I have no issues paying someone 1% pa if they are earning me a return consistently in excess of 15% pa. 1%pa is for Stakeholder anyhow which is a high transfer value, low maturity contract. This is the opposite to a traditional contract. They have lower annual management charges, mine is on a sliding scale the lareger the underlying fund becomes.

4) Please tell me how you will get tax releif and equity return performance from investing your money in the bank?

5)An annuity will provide you for life, so if you get say 10k pa from a 100k fund, then once you live 10 years your in the profit, retiring at age 50 given the possible advancements in medical health care might mean as much (if not more) than 50 years of retirement income, so using your numbers, a 100k fund - which might cost you 10k to grow, will pay you back 500k over your lifetime - not bad.

6) We dont know what the rules will be in 25 years time for pension income, funds, annuity rates so why try and forecast - better to plan for the worst and have a better actaul outcome than do nothing and be ****ed!

Laters

JoeyDeacon

Sunil,

Have to be quick as I am about to leave to go home..

My two main problems with Personal Pensions are firstly the charges and secondly the fact that you HAVE to purchase an Annuity. You are saying that you might well live for another 50 years, but what about the flip side of the coin?? Say you have cancer and you only have a year or so to live. Wouldn't you rather be able to have access to all that money you spent on an annuity??

The tax relief you get on a Pension is a massive incentive to get one and everything is rosy until the day comes when you buy your annuity. I hear what you are saying about not relying on it as your only form of income in your old age but I think you will find quite a lot of people will do just that. I was just trying to make the point that if you ARE relying on it to provide for you in your old age you might be sorely dissapointed. And as we all know by then it will all be far too late.

Whatever you do do your homework and don't believe everything the guy selling you the policy says. Also Sunil is completely correct that you should start these things as early as you can as you need time for the miracle of compound interest to take effect!

I think we will agree to differ!

sunilp

Yes, you agree to differ, what if you get cancer?, what if you dont?, what if the rules change, what if annuities pay 20% pa?, but inflation is 25% pa?, i mean today you have inflation of 2.5% and annuity rates of 7-8%?

In fact its so bad, the world is all going to end tommorow, live for today

Sunil

Dave T-S

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:<HR>Originally posted by sunilp:
<B>seems like i killed the conversation though? [/quote]

No, we just all hate you.....