Mutual insurer Equitable Life says it will cut bonuses for some of its policyholders as part of a raft of measures aimed at getting its troubled finances back on an even keel.
The main element is a 16 per cent cut in the value of "with-profits" pension policies, which pay a bonus on top of guaranteed levels, and 14 per cent fall in life assurance policies, based on their values last December 31st.
The move will see some with-profits bonuses almost disappear at the company, which was forced to close to new business last December because of a gaping hole in its finances.
Equitable put itself up for sale last year after the House of Lords, Britain's highest court of appeal, ruled the 239-year-old group must honour bonuses guaranteed to 90,000 holders of policies written in the 1970s and 1980s, when interest rates were much higher.
The judgment left Equitable with a liability estimated at upwards of £1.5 billion sterling.
After failing to find a buyer for the entire business, Equitable closed its life fund to new business last December and in February sold its operating units to Halifax, Britain's largest mortgage bank.
Today's announcement completed a revamp of Equitable which, since March, has had a new board, new actuary and new auditors.
The cuts would mean a pension policyholder with a pool worth £50,000 last December 31st would see that cut to £42,000.
However, if the pool was made up of £40,000 in guaranteed funds and a £10,000 with-profits bonus, the £8,000 would be cut from the bonus, leaving the £40,000 pound guaranteed fund untouched.
"It is a shock," said Mr Ron Bullen, from the Equitable Policyholders' Action Group. "The logic, I suppose, is not questionable, but that doesn't make it any better if you're on the receiving end."
"The outflow of funds, is clearly behind this. Perhaps it is greater than we had been led to believe," he said, referring to people cashing in their policies to take their business elsewhere.