Transcription
Annual review of Additional Voluntary Contributions (AVCs) with Equitable Lifeover the year to 31 March 2019NILGOSC, in consultation with its investment adviser, Aon Hewitt Limited (Aon), hascompleted its annual review of the Scheme’s AVC arrangement with Equitable LifeAssurance Society (Equitable Life). The outcome of the review is summarised in this letterand details the following information: Transfer ProposalEquitable Life’s Financial StrengthViews on the Investment optionsAdministrative and Other General UpdatesScam AwarenessAdvice and GuidanceFurther InformationA performance report for all funds offered by Equitable Life (Annexes A and B)If you are unsure of your investment funds, then please refer to your last Equitable LifeStatement.Transfer ProposalEquitable Life announced, in June 2018, that it was proposing to transfer the business andall of its policies to Reliance Life, which is part of the specialist European Life Assurancegroup, Life Company Consolidation Group (LCCG). In March 2019, Reliance Life rebrandedas Utmost Life following the rebrand of LCCG as the Utmost Group of Companies.Since Equitable Life is a mutual society and is therefore owned by the members of theWith-Profits fund, this proposal cannot go ahead unless enough With-Profits policyholdersvote for it and the High Court then approves the proposal. Equitable Life will issue WithProfits policy holders with further information in August 2019. The planned deadline forvoting is 30 October 2019 online, or 1 November 2019 at the meeting. If the vote is infavour of the proposal, then, subject to court approval around 19 November 2019, thetransfer will take place on 1 January 2020.Full details of the process and associated timeline are available on Equitable Life’s websiteat https://www.equitable.co.uk/proposal/index.html.If the proposal is approved, it will result in capital reserves currently held to meet futureliabilities being freed up to be paid to With-Profits policyholders. If the proposal goesahead, it will mean the following for you if you have a With-Profits policy: The value of With-Profits policies will be increased from the current 35% capitaldistribution to an estimated 60 to 70%;Any Investment Guarantees attached to your With-Profits Policy will be removed;If you hold a With-Profits policy, the increased value will be converted to a UnitLinked Policy;All Equitable Life policies will be transferred to Utmost Life, with continuity ofservice provided by the current administration team.1
Importantly, With-Profits members not wishing to lose out on the increaseduplift will need to defer taking benefits or transferring out until after the transferto Utmost Life on 1 January 2020.If the proposal does not go ahead, your policy will continue to run as it does now.Annex D includes some answers to questions you are likely to have.Please refer to the Equitable Life website for updated information as the processprogresses: https://www.equitable.co.uk/proposal/index.html. You can also contactEquitable Life directly by telephone on 0330 159 1530 or by email atenquiries@equitable.co.uk for further information. NILGOSC and Equitable Life will bothwrite to you again with further information as the process progresses.It is unclear at this stage how the proposal will affect other Equitable Lifepolicyholders not in the With-Profits Fund. Equitable Life plans to write to thesepolicyholders during August 2019 to outline the possible effects.Equitable Life’s Financial StrengthEquitable Life is a mutual society and is therefore owned by the members of the WithProfits fund. AKG Consultants and Actuaries Ltd (AKG) awarded Equitable Life a ‘B-‛ overallfinancial strength rating as at August 2018, which is defined as ‘Satisfactory’. AKG is aspecialist provider of ratings information and market assistance to the financial servicesindustry.Equitable Life has a significant book of AVC business which has been through a costreduction programme aimed at removing complexity and ensuring the cost base is moredirectly aligned to policy run-off.You can choose to leave your funds with Equitable Life or transfer them to the range offunds offered by NILGOSC’s current in-house AVC provider, Prudential, but please notethe comment in red above.Views on the Investment OptionsSet out below are the views of NILGOSC’s investment adviser, Aon, on each investmentoption within NILGOSC’s Equitable Life AVC arrangement. Aon has also preparedperformance data and cost information on the specific funds and this is detailed in AnnexA.With-Profits FundAs at December 2018, AKG rated the financial strength of the With-Profits Fund as ‘Good’and its future performance prospects as ‘Average’. However, AKG has also confirmed thatthere are signs of some improvement in relation to the latter and that financial strengthhas improved. Equitable Life has stabilised its position over the last few years by removinga significant amount of risk. It has achieved this by reducing liabilities and reducing theexposure to equities in the With-Profits Fund, although this has affected the futureperformance prospects. The rating has been increased from ‘Poor’ to ‘Average’ due to theproposed transfer, but should it go ahead, future performance will depend on the unitlinked fund chosen.The With-Profits Fund is managed by BlackRock with the objective of maximising returnson assets whilst maintaining the required level of solvency and its target is to outperform2
the benchmark by an average of 0.15% p.a. over a rolling three year period. Aon ratesBlackRock highly as a passive manager.Policy values during 2018 were increased by 2% p.a. and will be increased by 2% p.a.during 2019. Guaranteed values increased by 3.5% as NILGOSC's policy has a GuaranteedInterest Rate. Effective from 1 April 2015, policy values are being enhanced by 35%(replacing the previous 25% enhancement) for retirements and transfers from the WithProfits Fund. As noted above, this enhancement could be increased if the proposal goesahead.The Equitable Life With-Profits Fund has continued to strengthen as it gains control of itsliabilities and de-risks, meaning that Equitable Life is now able to transfer the business.The guarantees continue to be the focus for the investment strategy. As a result, there isno prospect of any additional return. However, the proposed transfer and uplift to policyvalues provides an exit strategy for members, but not until 2020. Although GuaranteedValues would be lost because of the transfer, it is estimated that 94% of members havean underlying value greater than the Guaranteed Value and that the uplift would result inall members’ benefits being at least equal to the Guaranteed Value.Money FundThe Money Fund is the only money market fund available with Equitable Life. It is part ofthe money market sector and therefore can invest in a wide variety of money marketsecurities. The Money Fund has an Annual Management Charge (AMC) of 0.5% p.a.The Equitable Life Money Fund has consistently underperformed its benchmark (LondonInterbank 7 Day Deposit Rate) on a net basis over the last 5 years. The Fund produced apositive return on a net basis over the past year and is therefore providing capitalprotection due to the increase to the base rate. However, it is still far below the level ofinflation and therefore any investment is losing value in real terms. The strategy providesstability and liquidity, but it is important to note that despite its low risk profile the funddoes not provide a guarantee against a potential fall in its unit price.Members with investments in this fund should carefully examine their current investmentand future contributions with Equitable Life and consider moving them to the alternativeprovider, Prudential.Managed Fund (Unit-linked)Aberdeen Standard Investments (ASI) has managed the Equitable Life unit-linked fundssince August 2017, when Standard Life Investments and Aberdeen Asset Managementmerged to form ASI. The collaboration makes ASI one of Europe’s largest activeinvestment managers and reflects ASI’s commitment to offer a diverse and comprehensiveproduct range across asset classes.Aon lowered their rating for ASI in Q4 2018 to reflect ongoing negative headlines involvingASI and material outflows on the flagship Global Absolute Return Strategy. With assetscontinuing to flow out of ASI post-merger, Aon has some concerns around ASI’s equityand multi-asset capabilities which may impact the funds available to members. However,the assets may be transferring at the end of year and they continue to regard ASI as asuitable manager of money market funds.The fund has marginally outperformed its benchmark on a net basis over the last year,although a high equity weighting has resulted in significant volatility over the same period.3
Members with investments in this fund should carefully examine their current investmentand future contributions with Equitable Life and consider moving them to the alternativeprovider, Prudential.UK FTSE All-Share Index-Tracking Fund (Passive Fund)The UK FTSE All-Share Index-Tracking Fund is a passively managed fund with an objectiveto track the FTSE All Share Index as closely as possible. It has tracked the benchmarkwithin a reasonable tolerance over the past five years, although volatility over the lastyear has resulted in performance that is -0.6% below the benchmark gross of fees.As noted in Annex A, Aon has some concerns around ASI’s equity management capabilitiesand would therefore advise members to review their fund choice to ensure that it is asuitable fund to meet their needs.Voluntary Life AssuranceOnly a small number of members contribute towards voluntary life assurance. The ratescontinue to be competitive relative to the rest of the market and Aon continues to viewthe product as appropriate.Administrative and Other General UpdatesAdministrationAon has no concerns over the quality of Equitable Life AVC administration and hasconfirmed that it is suitable for the services offered. If the transfer proceeds there will becontinuity of service, but there are likely to be changes over time to align theadministration service with other pension business within Utmost Life and Pensions inorder to provide efficiencies. Equitable Life does not publish service standards but aims toreply to most requests within 10 days and complete payments within 5 days. Aon’sexperience is that turnaround times are in line with peers.Charging structureAs from 30 June 2018 an initial charge is no longer being deducted from contributions andonly the AMC is now being applied. The AMC for the Managed (Unit-linked), UK FTSE AllShare Index-tracking and Money funds are set out in Annex A.In respect of the With-Profits Fund, charges are taken from the fund before the declarationof bonuses, which is standard practice for this type of fund. This includes 1% p.a. foradministration and 0.5% p.a. to meet the expected cost of guarantees and acts as a bufferagainst risk and adverse experience. These charges are high but typical for this type ofarrangement. Equitable Life has stated that it is unlikely to be able to run the businesswithin these levels beyond the next ten years.Overall, Aon believes that the charges for all available funds are reasonable and justifiablewhen compared to the current environment and comparable alternatives. Although it doesnot apply to these arrangements, the charge cap for Qualifying Workplace PensionsSchemes remains at 0.75% and is a useful benchmark in assessing value for money of theUKFTSE All-Share Index tracking fund, the Money fund and the Managed (Unit-linked)fund. These funds are at or below this level.4
Freedom and ChoiceFrom 6 April 2015 the Government changed the law giving you more freedom on how andwhen you can access your AVC fund. This is known as Freedom and Choice.NILGOSC members can use their AVC fund at retirement in one of three ways: Buy a top-up pension through the LGPS (NI). Take up to 100% of their AVC fund as tax-free cash, subject to HMRC limits,providing it is drawn at the same time as their main Scheme benefits. If a memberretires and draws their AVC fund at a later date than their main Scheme benefitsthey are restricted to 25% of their AVC fund as tax-free cash. Buy an annuity from an insurance company, bank or building society of themember’s choice at the same time as drawing their main Scheme benefits.Members can transfer their AVC fund to another pension scheme or arrangement, even ifthey are still an active member of the main Scheme. However, they must have stoppedmaking AVC contributions and they cannot already have drawn some AVC benefits fromthat Fund, for example through flexible retirement.Different pension providers offer different options in relation to what you can do with yourAVC, including the option to buy regular income (an annuity). By transferring out to oneor more different pension arrangements you may be able to access options that are notavailable under the NILGOSC Scheme rules, such as: take several lump sums at different stages – usually the first 25% of each cashwithdrawal from your pot will be tax-free with the rest subject to tax. take the entire pot as cash in one go – usually the first 25% will be tax-free withthe rest subject to tax. Remember, it is possible to take all your LGPS (NI) AVCplan as a tax-free lump sum, subject to certain conditions, if you leave it in theScheme and take it at the same time as your main Scheme benefits. to provide a flexible retirement income – this is known as flexi access drawdown.You are normally allowed to take a tax-free lump sum of up to 25% and then setaside the rest to provide taxable lump sums as and when, or a regular taxableincome.There may be tax implications associated with accessing your benefitsdescribed above. The income from a pension is taxable; the rate of tax youon the amount of income that you receive from a pension and from otherdifferent options mentioned above have different features, different ratesdifferent charges and different tax implications.in the wayspay dependssources. Theof payment,Scam AwarenessPension scams can be hard to spot. Scammers can be articulate and financiallyknowledgeable, with credible-looking websites, testimonials and materials that are hardto distinguish from the real thing.Scammers usually contact people out of the blue via phone, email or text, or evenadvertise online. They may also be introduced to you by a friend or family member who isalso unknowingly being scammed.5
Scammers will make false claims to gain your trust. For example: claiming they are authorised by the FCA or that they don’t have to be FCAauthorised because they aren’t providing the advice themselves claiming to be acting on the behalf of the FCA or a government serviceScammers can design attractive offers to persuade you to transfer your pension pot tothem or to release funds from it. It is then often invested in unusual and high-riskinvestments like overseas property, renewable energy bonds, forestry, storage units, orsimply stolen outright.You can find more information on the Pensions Regulator website -scams or on the Financial ConductAuthority website at: -scams.Advice and GuidanceAs with any choice of investment, no one can predict with certainty which fund will offerthe best return. When you compare Equitable Life’s funds, you need to decide whichinvestment is most suitable for your needs. Often this will depend upon the level of riskyou wish to take and how far you are from retirement. If you are due to retire in a relativelyshort period of time (less than ten years) there is limited potential to invest in analternative fund option(s) which will produce a greater return than the With-Profits fundat the same level of risk.Any investment decision is a personal one, reflecting your financial circumstances,approach to investment and attitude to risk. Please note that NILGOSC and itsprofessional advisers are not authorised to give you financial advice. If you are inany doubt about your investment decisions or how to use your AVCs then we recommendthat you get guidance and/or independent financial advice to help you decide which optionis most suitable for you.Pension Wise is a free, impartial service offered by the Government to provide guidance,once you reach age 50, to help you understand your defined contribution pension optionsincluding AVCs. You can find out more at www.pensionwise.gov.uk or by calling 0800 1383944 to book a phone or face-to-face appointment.Independent financial advice: Help with finding an independent financial adviser isavailable at www.moneyadviceservice.org.ukThe Money Advice Service offers free and impartial money advice, including pensionsand retirement information. Contact details are set out .uk0800 138 7777 (Calls are free)The Financial Conduct Authority (FCA) is the regulatory body for independent financialadvisers. The FCA maintains a register of authorised IFAs. Details can be found on the FCAwebsite at https://www.fca.org.uk or by telephoning the FCA on 0800 111 6768.The Personal Finance Society is the professional body for financial advisers. It providesaccess to appropriately qualified members who commit to the highest professional andethical standards. Details are on their website at https://www.thepfs.org/yourmoney/findan-adviser6
Unbiased is a website listing regulated and independent financial advisers, mortgagebrokers, solicitors and accountants. It checks that they are registered with the FinancialConduct Authority (FCA). You can find an IFA in your area by typing your postcode intothe ‘Find an IFA’ search tool on the website https://www.unbiased.co.uk/.If you wish to transfer your investment funds from Equitable Life to Prudential,please complete and return the attached transfer request form to NILGOSC atthe address on the form or contact NILGOSC on 0345 3197 325 and ask for thePensions Administration Team.Further InformationFurther information on the AVC Scheme, including the investment performance of fundsin the approved AVC range, can be found on the Members’ section of the NILGOSC websiteat: tribution.Some information about Equitable Life’s policies can be found on their websitehttp://www.equitable.co.uk. Please note that the information provided on this website islimited in scope.If you require any further information in relation to your AVC fund, the PensionsAdministration Team at NILGOSC is happy to help with your questions, but pleaseremember that NILGOSC staff cannot give you financial advice about your investments.The Pensions Administration Team can be contacted on 0345 3197 325 or by email atinfo@nilgosc.org.uk.7
Annex ASummary of Fund Performance and Charges to 31 March 2019Equitable Life FundsThe table below lists all the Equitable Life funds and details the annual managementcharge, 1 year investment return to 31 March 2019 and the performance relative to eachfund’s benchmark for the same period. Aon’s view of each fund is also provided.FundPassive FundUK FTSE AllShare IndextrackingActive nagementCharge(%)1 year returnto 31 March2019(%)Performancerelative tobenchmark1Aon view0.55.8-0.6We have someconcerns aroundASI’s equitymanagementcapabilities.0.50.2-0.3We regard ASI as asuitable manager ofmoney market funds.0.755.20.7We have someconcerns aroundASI’s multi-assetcapabilities due tonegative asset flows.2.02N/AThe proposedtransfer to UtmostLife and Pensions willaddress our concernsabout the futureperformanceprospects.Bonusdeclared netof chargesNote: Performance is provided Gross of fees for Passive Funds and Net of Fees for Active Funds.12The benchmark is the relevant index against which the performance of each fund is measured.Current bonus rate.8
Annex BUnit-Linked Fund Performance as at 31 March 2019Equitable Life FundsThe table below shows the annualised performance, including benchmark and relativeperformance, of the unit-linked funds to 31 March 2019.1 Year(%)3 Years(% p.a.)5 Years(% enchmark0.50.30.3-0.3-0.3-0.3Managed (Unit-Linked)5.27.86.1Benchmark4.57.56.0Relative Performance0.70.30.1FundPassive FundUK FTSE All-Share Index-TrackingBenchmarkRelative PerformanceActive FundsRelative PerformanceNote: Performance is provided Gross of fees for Passive Funds and Net of Fees for Active Funds.9
Annex CTransfer Instructions – transfer of AVC from Equitable Life to PrudentialNI NumberNILGOSC RefPlease fill in this form and return it to: NILGOSC, Templeton House, 411 Holywood Road,Belfast, BT4 2LP.PLEASE USE BLOCK CAPITALSFull Name:Date of Birth: Telephone number:Please tickI wish to transfer the value of my existing Equitable Life With-Profitsinvestments to the Prudential.I wish to transfer the value of my existing Equitable Life Unit-Linkedinvestments to the Prudential.I wish to transfer the value of my existing Equitable Life Deposit Fundinvestments to the Prudential.Your signatureI have read the update from NILGOSC dated 1 August 2019 and I understand that: Any transfer out of the Equitable Life With-Profits Fund may have a financialadjustment applied to it. This can change and the transfer value is not guaranteed. If I wish to transfer to Prudential, NILGOSC will, on receipt of this request, forward mea transfer pack for completion and return.Signed: Date: .If you are in any doubt about your investment options you are recommended toseek independent financial advice. If you do not return the form your EquitableLife AVCs will continue to be invested as they are currently.10
Annex DHelpful questions and answers in relation to the ProposalQ1. What are the fund and guaranteed values?The fund value, which includes capital distribution on the With-Profits investment, is theamount you receive if you take your savings. With-Profits policies also have a guaranteedvalue which is the minimum amount payable on retirement, death or at a time specifiedin the policy. Following a vote in favour of the proposal, this guarantee and the annualincreases will cease.Q2. What do you mean by capital distribution?Capital is the money a company needs to hold to protect itself against things going badlywrong that could otherwise lead to insolvency. The amount of capital Equitable Life hasto hold depends on the level of risks faced by the Society. As risks are reduced, capital isfreed up and can be returned to With-Profits policyholders, which is known as capitaldistribution. Equitable Life is determined to return capital to With-Profits policyholders asfairly and as soon as possible, and their proposal aims to achieve this.Q3. Why can’t you give me the exact size of the enhancement now?The actual enhancement will depend on a number of factors and, in particular, financialconditions when all the necessary legal steps have been taken later in 2019. There is apossibility that the final enhancement may be less than 60% or more than 70%, based on31 December 2017 values as compared to the current 35%.Q4. What will my savings be invested in after transfer to Utmost Life?Following closure of the With-Profits fund, you will have a choice of unit-linked fundsmanaged by Utmost Life. Before the vote, Equitable Life will provide information on theavailable funds, so you can make fund choices that are suitable for your needs. Unitlinked funds present different risks and rewards, and an Independent Financial Advisercan help you choose the right fund for you.Q5. What happens if I leave before the values are enhanced?You would lose the opportunity to increase the current 35% capital distribution to a levelexpected to be between 60% and 70%. You should exercise great care before taking yourbenefits in advance of the proposed enhancement and an Independent Financial Advisermay help you with this decision.Q6. What about new contributions I make to the With-Profits fund?Only policyholders who have paid in regularly to the With-Profits fund can pay newcontributions to the fund, and any contributions paid after 31 December 2017 will notbenefit from the proposed enhancement. The terms for investing contributions have beenreviewed and the initial contribution charge has been removed with effect from 30 June2018.Q7. What happens if not enough policyholders vote in favour of the proposal?The proposal would not proceed, you would not receive the additional fund enhancement,and Equitable Life would return to running off the Society over the next 20 years. Whilethey have been able to increase your fund value steadily over the last few years, they11
Annex Dcannot guarantee this will always be the case. If the fund value were to fall, no less thanthe guaranteed value would be payable.Q8. What can you tell me about Utmost Life’swebsiteEMAG’s campaign for additional government compensationEMAG are encouraging With-Profits policyholders to contact their MP to lobby for additionalGovernment compensation. You may be interested in this if you received a compensationpayment from the Equitable Life Payment Scheme. You can find details on their websitehttp://www.emag.today/12
Money Fund The Money Fund is the only money market fund available with Equitable Life. It is part of the money market sector and therefore can invest in a wide variety of money market securities. The Money Fund has an Annual Management Charge (AMC) of 0.5% p.a. The Equitable Life Money Fund has consistently underperformed its benchmark (London
