Page last updated 15/11/01

The following is the text of a letter, due to be issued on 21 November by the Fund.

Further information will be reproduced on this site as and when it becomes available.

Dear Scheme Member

Equitable Life With-profits Fund ~ Surrender Options

Important – all the comments in this letter and the Appendix produced by Mercer’s relate to existing money held in the Equitable Life “with-profits” fund for those who have yet to draw their pension only.  Investments in other funds (unit-linked, managed, building society, cash), and ordinary (non-profit) pensions in payment, are not affected.

1.  Introduction
We wrote to you on 21 June 2001 with information on the position of the Equitable Life Assurance Society.  We have also kept our website up to date with any subsequent developments.  We have now consulted further with our advisers, William M Mercer Limited, on the possibility of surrendering Equitable with-profits funds.

Equitable have indicated that, for individuals wishing to surrender, a penalty of 10% of their with-profits funds will be applied.  This was increased from 7.5% on 12 September 2001 as a result of stockmarket falls.  However, terms are potentially different for a group of members of the same scheme and the Administering Authority have been liaising with Equitable to establish specific surrender terms available for members of our scheme.  The indications thus far are that the surrender penalty for members of this scheme is unlikely to be lower than 5%, particularly following the recent market falls, but may nonetheless still be at or below the new individual 10% rate.

The Administering Authority cannot give individual guidance to members, and those in doubt about the best course of action should seek independent financial advice.  However, we have received information from our advisers on some of the factors which may make individual surrender more attractive to some members than others and we would draw members’ attention to these. This is provided for your information as an Appendix to this letter. There is inevitably a lot of detail in this note, but the Administering Authority think it is important to ensure that you and any Financial Adviser you consult are in possession of as much information as possible.

Our advisers expect that many members with more than 10 years or so to intended retirement would consider surrender attractive at the current time, whilst this is much less likely for those close to retirement.

2.  What are the factors which might make surrendering attractive to me?
Summarising the discussion in the Appendix, surrendering now is likely to be attractive if one or more of the following relate well to your individual circumstances:

• you are some years (10+) from intended retirement, are comfortable with moving your AVC monies (less the surrender penalty) to a fund investing largely in equities and anticipate further outperformance from equities

• you believe there is a significant prospect of further bad news to come, either because the capping deal cannot be concluded or because your expectations are for markets to fall further (and you would be looking to invest so as to avoid this market fall)

• you would like to lock into the reduced fund value because it could meet your needs and you wish to avoid any further bonus reductions and switch to a lower risk investment such as bonds or cash.

3.  What are the factors which might make surrendering unattractive to me?
Summarising the discussion in the Appendix, surrendering is not likely to be attractive if either of the following relate to your individual circumstances:

• you are close to retirement (say within 5 years), because you would suffer a further loss of at least 5% (and possibly 10%) on surrender and there is little opportunity to make it up, other than by successfully adopting a much higher risk investment strategy

• you are reasonably close to retirement (say 5-10 years) and the bulk of your policy value is made up of guaranteed funds (80%+ by reference to your last benefit statement), since the surrender penalty is effectively more than the apparent 5 to 10% and the chances of making it up are low.

4. Scheme-wide surrender
The Administering Authority has considered whether it should surrender all members’ funds, or those of specific groups, with the aim of locking in a lower overall penalty.  It has decided not to do this at the current time, because there are significant numbers of members for whom such a move could well be inappropriate, for the reasons summarised above, and executive action without consulting members is not therefore anticipated, at least at this stage. This policy will continue to be reviewed in the light of developments.

5.  Where does the money go if I surrender?
This is your choice – the options and their characteristics in terms of risk and potential reward are described in the AVC booklet issued by the alternative AVC provider, Prudential.  If you do not have a copy of the AVC booklet, please contact Pensions Connection on 0845 607 0077 (web site address:   www.localgov@prudential.co.uk). Most members would tend to choose a fund largely invested in equities, if they were some years from retirement and expect a superior return to arise from equities in the long term in spite of the short term risk to capital.

Those wishing to take a more cautious line, particularly if it is important to achieve relative certainty of retirement income even at the cost of performance potential, would tend to choose a fund that seeks to protect the purchasing power of the fund in terms of the amount of annuity it might provide on retirement, for example a fund investing in British Government gilt stocks.

Alternatively, provided that you are over age 50 and started paying AVC’s to Equitable Life prior to 13 November 2001, you may be able to elect to stop these payments and transfer your accumulated AVC’s into the West Midlands Metropolitan Authorities Pension Fund in order to buy added service credits.  If you are interested in this option, please tick the appropriate box on the enclosed form for further details.

Please note, however, that Equitable Life have indicated that members are unlikely to be able to take any funds away from Equitable with-profits until after the end of November this year because their computer system will not be able to generate individual policy values until then.

This means that, whilst you (or the Administering Authority on your behalf) may be able to accept surrender terms prior to that date, the money will not be available for re-investment until later.  This could be of particular concern if conditions for investing the money have deteriorated by the time the new investment is made, i.e. markets have risen.  Unfortunately this is outside the Administering Authority’s control.

6.  How can I arrange a surrender?
If you decide that you do wish to surrender your Equitable with-profits funds at the present time, please complete the attached form which should be returned to the Fund not later than 21 December 2001.  Please also indicate your choice of fund for the surrender proceeds to be reinvested in.  The Administering Authority will arrange with Equitable for the surrender to take place as soon as possible after 21 December 2001 by adding your name to a list of members that will be submitted electronically to Equitable as part of the bulk surrender exercise.  No guarantee can be given as to the terms which will apply.  What the Administering Authority will endeavour to do, as best they can in these difficult circumstances, is to proceed with the surrender provided they consider the terms to be no less attractive taking account of market conditions, at that time, than a 10% penalty is at present.

If the Administering Authority decides not to proceed on a group basis, you may be asked to review any direction you may have given up to that point.  If you do not respond by 21 December 2001, this will be interpreted as indicating that you do not wish to transfer at the present time.  This does not mean you will be locked in to Equitable forever.

However, delays may continue to increase, and later terms may be less satisfactory (of course an improvement in prospects cannot be ruled out either).  The position will be kept under review by the Administering Authority.

Remember – this letter gives general information and is not intended to be advice to you or to relate to your personal circumstances.  If you are not sure what action to take, you should get your own professional advice from an Independent Financial Adviser of your choice.

Yours sincerely

Mike Woodall

Chief Pensions Officer

www.equitable.co.uk

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