Equitable Life shocked policyholders yesterday when it revealed that its complex compromise scheme would cost £30m. Vanni Treves, chairman of the stricken life office, said the money would have to be paid from the society's depleted funds this year.
Mr Treves admitted that the cost of the scheme was "an astonishing amount".
He said: "The blood drains from our faces when we think about the cost, but we had no choice. It has involved a number of people who charge a lot of money – it has been a massive legal and actuarial exercise."
Equitable's chairman unveiled the sum at a series of meetings at Wembley Conference Centre, attended by about 500 policyholders who gathered to vote on the compromise.
Policyholders were less convinced that the expense was necessary. Paul Braithwaite, chairman of Equitable Members Action Group, asked why couriers had been dispatched to members abroad to deliver and collect voting forms.
He also attacked bonuses intended to be paid to Mr Treves and to Charles Thomson, Equitable's chief executive. Mr Treves is in line for a figure which would quintuple his income to £300,000. Mr Thomson may receive a bonus which would double his income. In total his package could be worth £650,000, if Equitable's remuneration committee votes through both bonuses in March.
Mr Braithwaite said: "Our members are aghast at Charles Thomson's package, which is to be paid in the midst of huge personal sacrifice by policyholders." Asking the two to waive their bonuses, Mr Braithwaite added: "You are living beyond our modest means."
Yesterday's meeting was the last real opportunity for policyholders to voice their views about Equitable's extraordinary decline in the last year, which has left thousands facing an old age to be paid for with considerably less income than they had been expecting. Nevertheless, most policyholders seemed resigned to the need to accept the compromise. Liz Kwantes, chairwoman of another action group and a policyholder, said: "I think it is best for all of us if the scheme gets passed, but it is Hobson's Choice."
Under the scheme, guaranteed annuity rate (GAR) policyholders are being offered an average uplift of 17.5 per cent while non-GARs are to receive on average 2.5 per cent. Equitable has devised this plan as a way to cap a £1.5bn liability which emerged last July when the House of Lords ruled that GAR contracts were worth more than Equitable was paying out. As a result, Equitable was forced to find an extra £1.5bn to distribute among its 70,000 GARs.
GARs are being offered an uplift if in return they agree to give up the guarantee, which will result in their annuity being much smaller. Non-GARs are being offered a more modest increase if they promise not to sue the society over the whole GAR debacle – which has cost them seven months of bonus last year as well as hefty cuts in the value of their policies.
The outcome of yesterday's vote will be made known as part of the announcement of all votes at the end of the month. Equitable's board strongly supports a "yes" vote and is expected to get it. The scheme must then be ratified by a High Court Judge in early February.
For the vote to be passed 50 per cent by number and 75 per cent by value of both GARs and non-GARs must vote in favour.