The High Court ruling by the Vice-Chancellor, Sir Richard Scott - open to appeal - will see the policyholders receive up to 25 per cent less income for retirement than they expected. The ruling has repercussions throughout the pensions sector.
Sir Richard rejected claims that the decision to cut bonuses involved "depriving policyholders of part of their asset share". He said the directors were acting well within the discretion allowed by the contracts that were sold.
The case was brought in the High Court by Equitable to try to silence a storm of criticism about its handling of so-called guaranteed annuities. These were widely sold in the Seventies and Eighties, but had become prohibitively expensive to service because of a fall in investment returns in the past five years.
Alan Nash, Equitable managing director, said he was "delighted" the court had vindicated the directors' decision to cut bonuses rather than land 400,000 remaining with-profits policyholders with the bill.
However, David Hyman, a semi-retired former stockbroker, of Hampstead Garden Suburb, north London, who had agreed to be the defendant, said after the judgment that he was "disappointed" but "not surprised" by the ruling. He said he had bought five policies from Equitable in the belief they were the best. "Far from the policies being better than those of anyone else, it turns out they were far behind the pile," he said. Another Equitable pensioner said he had seen the value of his retirement pot fall from pounds 450,000 to pounds 290,000 because of the policy change.
Industry experts were divided on the precise figures involved, although one estimate suggested that the total bill for the industry had the case gone against the Equitable would have been about pounds 10bn.
The only other company known to face problems on a similar scale is Scottish Widows, which has set aside pounds 1.7bn.
Equitable still faces the threat of another legal challenge from 500 policyholders.
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