Equitable Life with profits pension / takeover.

eumaeus

Deleted_User wrote: »

Thanks. Understand now. Presumably the reserves should then be counted in relation to assets held within annuities only and can be reduced significantly vs status quo as most assets will become “unit linked”. Logically annuity holders should not get compensation but nor should Utmost deplete their portion of the assets held by the company. That’s just a typical solvency calculation for any insurance type product.

Is that what happened?

I think so, except at the hearing there was some reference to capital being held in respect of unit-linked funds, which I didn't follow for precisely the reasons that you give here. I may have misunderstood.

cronshd

eumaeus wrote: »

Non-profit is a standard annuity, and not unit-linked. A small proportion of the Equitable book is annuities such as mine.


d

Dean, are you saying that you have an annuity with Equitable Life? Is this a GAR annuity?

pafpcg

cronshd wrote: »

.... are you saying that you have an annuity with Equitable Life?

If so, wouldn't an annuity from a pension provider be covered by the FSCS, in the event of the pension provider becoming insolvent? I don't know for certain but I'm hoping that's the case.

eumaeus

cronshd wrote: »

Dean, are you saying that you have an annuity with Equitable Life? Is this a GAR annuity?

No it's a bog standard annuity.

pafpcg wrote: »

If so, wouldn't an annuity from a pension provider be covered by the FSCS, in the event of the pension provider becoming insolvent? I don't know for certain but I'm hoping that's the case.

Currently FSCS provides unlimited coverage to in force policies. However, Judge Snowden's decision on the Rothesay transfer excluded any consideration of FSCS, the reason being (I think) that FSCS is not guaranteed by any future government.

Suppose there is a tsunami of claims as the UK life insurance industry slides into insolvency. Is the FSCS guaranteed? Difficult.

cronshd

eumaeus wrote: »

No it's a bog standard annuity.

Currently FSCS provides unlimited coverage to in force policies. However, Judge Snowden's decision on the Rothesay transfer excluded any consideration of FSCS, the reason being (I think) that FSCS is not guaranteed by any future government.

Suppose there is a tsunami of claims as the UK life insurance industry slides into insolvency. Is the FSCS guaranteed? Difficult.

Dean, that's pushing it a bit isn't it? Based on that, then everyone should take their money out of retail banks and put it under the mattress because the FSCS compensation of £85,000 per account may not be guaranteed by a future government following an avalanche of claims as UK retail banks collapse.

As an aside, do you know anyone who has a GAR annuity?

[Deleted User]

I agree that annuity products do carry a risk and that there is a non-zero risk that FSCS won’t pay up. It’s an economic Armageddon type of scenario, never happened, but we got close in 2008.

It’s a reason to stay diversified

eumaeus

Here is what Justice Snowden said on the Rothesay judgment (my emphasis):

155. I should add that, in my view, this conclusion is not affected by the fact that, in the event of failure of Rothesay, the FSCS might pay compensation in full to policyholders. The relevant question in this respect is whether the Scheme makes a material change in the security of benefits for policyholders as a result of the change from PAC to Rothesay. If the possibility that the FSCS might step in and compensate annuitants in full in the event of failure of an insurer could be taken into account, then it would apply in all annuity cases, and there would be no purpose in any detailed analysis of the respective financial strengths of the transferor and transferee companies. That is not an approach which has been adopted in any previous case. Moreover, I do not consider that it can be right that commercial parties should be able to rely upon the potential availability of a public or industry fund of last resort such as the FSCS – the rules of which might in any event be changed over the lifetime of the annuities – as a solution to any shortcomings in their schemes.

bailii.org EWHC/Ch/2019/2245

Based on that, then everyone should take their money out of retail banks and put it under the mattress because the FSCS compensation of £85,000 per account may not be guaranteed by a future government following an avalanche of claims as UK retail banks collapse.

Well no because a bank account is a call deposit. A life insurance contract, on the other hand, is with you, er, for life.

cronshd

eumaeus wrote: »

Here is what Justice Snowden said on the Rothesay judgment (my emphasis):
bailii.org EWHC/Ch/2019/2245



Well no because a bank account is a call deposit. A life insurance contract, on the other hand, is with you, er, for life.

Interesting discussion and thank you for your comments.

I am trying to understand the core of why you brought up your objections in the first place. As an annuitant you are protected by the FSCS.

Were you trying to stop the Equitable Life proposal because there is a possible black swan case of 2 unrelated events:
(i) Utmost financial failure, and
(ii) Withdrawal of FSCS compensation for annuitants generally

..and if these 2 events occurred, that would affect your financial well being?

pafpcg

eumaeus wrote: »

......
Currently FSCS provides unlimited coverage to in force policies. However, Judge Snowden's decision on the Rothesay transfer excluded any consideration of FSCS, the reason being (I think) that FSCS is not guaranteed by any future government.

Suppose there is a tsunami of claims as the UK life insurance industry slides into insolvency. Is the FSCS guaranteed? Difficult.

Thanks for that.

It's right that all possibilities should be considered, especially for those of us who have no opportunity to rebuild an income stream should our pension income disappear, either through a financial crash, fraud or whatever. As Mordko suggests, having diverse sources of income is important.

It's a timely reminder that when my partner reviews the quotes for the annuity we're planning to buy with her funds from Equitable, we need to look closely at the financial strength of the provider in case the FSCS "comfort blanket" gets a bit threadbare!

eumaeus

cronshd wrote: »

Interesting discussion and thank you for your comments.

I am trying to understand the core of why you brought up your objections in the first place. …

I have wider issues with transfers and buyouts generally.

• the Part VII process is an exclusive (public schoolboys?) 'club'. It was obvious from my 2 days in court that the barristers knew each other, and probably the judge. Martin Moore QC was also the barrister for the applicants in the Rothesay transfer case, and it is somewhat of a conflict that he was asking the judge in the Equitable case to rule out an approach which, if the judge agreed, would set an important precedent for the Rothesay appeal, etc etc.
• MA, which is a capital creating device, is highly prone to abuse. If you can create capital by persuading the regulators that the higher risk assets supporting the pensions are very low risk, then you can potentially distribute the capital to investors. I won't say any more in case I get a solicitor's letter (I have a collection of these) but you get the picture.

As I argued in court, Utmost is v thinly capitalised once you strip out the MA. They are claiming a spread of 130 bp over gilts with a spread allowed for default risk of a mere 38 basis points.

Oh yes, and Utmost is owned by a US hedge fund that specialises in distressed debt. Fancy that.