Equitable Life Proposal - decision time for trustees
What is the Equitable Life Proposal?
The Proposal covers trustees who hold Equitable Life with-profits policies with a guaranteed investment return, as a scheme asset.
The Proposal is:
- to remove the guaranteed investment return (typically 3.5%) on Equitable Life with-profits policies;
- to uplift the value of the with-profits policy by a minimum primary uplift of 68%;
- in some cases, provide a secondary uplift, to ensure "fairness indicators" are met for members;
- to convert all with-profits benefits to unit-linked investments; and
- to transfer the unit-linked benefits to Utmost Life and Pensions Limited.
How can trustees obtain the Proposal?
Details of the Proposal are available here or their advisers should have received hard copies of the Proposal and a spreadsheet setting out the effect on the relevant members from Equitable Life.
When do trustees have to decide?
Trustees have until 30 October 2019, if voting online, to decide whether to accept the Equitable Life Proposal.
Do trustees have to consult with members and/or employers?
There is generally no requirement to consult with members or participating employers, as the Proposal is a trustee investment decision. Trustees should check their scheme trust deed and rules on consultation requirements and investment powers.
What happens if trustees do not vote?
If the Proposal meets the relevant voting requirements and is approved by the High Court, then it will be implemented, even if the trustees have not voted or voted against the Proposal. The trustees will be bound by the Proposal if approved.
What happens if the Proposal is not approved by the High Court?
If the Proposal is not approved by the High Court, then trustees will retain the 3.5% guaranteed annual interest increase on with-profit policies.
Do trustees have to exercise their discretion on investment choices?
Trustees may consider all relevant factors and disregard irrelevant factors and decide not to exercise their discretion to choose unit-linked funds for the funds. If trustees do not exercise their discretion then:
- for the first 6 months post the implementation date for the transfer from Equitable Life to Utmost Life and Pensions Limited, which is expected to be 1 January 2020, the funds will be automatically invested in the Utmost Secure Cash Investment Fund;
- following the proposed timeline, from 1 July onwards, depending on a member's date of birth, the funds will be transferred to a specified fund or funds until a member takes his benefits, makes an alternative investment choice or transfers out of Utmost Life and Pensions Limited.
What should trustees do now?
Trustees have a number of issues to consider before deciding how to vote on the Proposal:
- the impact on each member's benefits and the Equitable Life with-profits policy as a scheme asset;
- whether the proposed uplift is a good deal in exchange for giving up the 3.5% guaranteed annual increase to the policy;
- whether to vote for the Proposal and, if so, whether to vote by percentages to reflect how the Proposal affects individuals members with benefits under the with-profits policy;
- remember that if the Proposal passes the required voting thresholds and is approved by the High Court, trustees will be bound by it regardless of whether they vote or vote against the Proposal;
- consider potential challenges that Equitable Life will face, if the Proposal does not go ahead eg ongoing administration costs with diminishing numbers of members;
- whether they require further information from Equitable Life, which is available at no cost; and
- whether they should follow the automatic options provided by Utmost Life and Pensions Limited on the transfer or decide how to invest the policy's unit-linked investments.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.