"The most important problem however has not been resolved and this is the unlimited liability that the guaranteed annuity rate policies could produce in the future.

"Guaranteed annuity rate policyholders are clear that it is very unlikely that other investors in the with-profits fund will remain invested in that fund if they were to lose any more bonuses – all policyholders have already lost bonuses from January to July 2000. If guaranteed annuity rate policyholders invest £100 in their pensions at the current time, other policyholders have to find £27 to support these guarantees. If this situation remains, guaranteed annuity policyholders may in the future have a benefit that is worth a lot on paper but no monies in the fund to pay them.

"It is only four or five years since current annuity rates were higher than guaranteed annuity rates. If this situation were to return then the guaranteed annuity rate liability would be zero.

"The companies that have pulled out from purchasing Equitable Life have taken the view that the risk of the liability increasing exceeds that of the risk of the liability either diminishing or disappearing.

"In either of the above circumstances the guaranteed annuity rate policyholders may very well be better off to make a compromise today that limits this liability and provides them with additional value in their funds. This would be guaranteed to be always available to them to purchase pension benefits in the future.

"It is important for all non-guaranteed annuity rate policyholders to note that they too will benefit from this compromise through the long-term performance of their investments and the opportunity for the fund to get rid of the 10% penalty on withdrawals.

"However, it is very unlikely that the guaranteed annuity rate policyholders will accept a compromise that in any way tries to negate the House of Lords’ decision."

5^th February 2001