Pensions company crisis hits AVCs

A crisis at the Equitable Life pensions company has called into question the level of returns investors are likely to get from the company's with-profits policies. This will be of concern to a large number of pension scheme members who pay additional voluntary contributions (AVCs) into schemes run by Equitable Life.

As a result of a High Court judgement Equitable Life is obliged to meet commitments it had made in so-called guaranteed annuity arrangements. Essentially the company cannot afford to do this without affecting the level of returns paid out in its with-profits policies.

Equitable Life provides AVC schemes to a wide range of major employers including the NHS and local government pension schemes. Scheme members with Equitable Life AVCs will be unaffected if they are paying into the managed funds variety but can expect lower-than-predicted returns in future from any with-profits policies.

Pension scheme members in this position need to take independent financial advice about the best course of action. It would be possible to stop paying into the AVC scheme and pay into a new scheme. Transfers of funds from an Equitable Life with-profits AVC will be hit by a penalty of up to 10% of the value of the fund.

More detailed advice should be available from members' occupational pension schemes and union offices.