This is no time for a lock-in

FACED with the choice of bringing some stability to pension prospects or facing years of further uncertainty, Equitable Life policyholders voted overwhelmingly for the compromise scheme.

As long as the courts now agree to the plan hatched by chairman Vanni Treves and his advisers, policyholders can look forward to a fresh start.

Many of those inside the Equitable, particularly holders of guaranteed annuities with a 17.5% uplift in their funds, may well decide that they have had enough of the roller-coaster ride and take the chance to jump off. It would be a travesty at this point - just as policyholders can see the sunny uplands - if the company decided to lock people in by raising the redemption penalty from the present 10%.

If necessary the managers may need to sell surplus assets to fund higher withdrawal. The Equitable has just pocketed £64.5m from a property sale to Estates & General. There may be more such deals to come.

Treves and chief executive Charles Thomson have worked round the clock to achieve this result, employing many of the dark arts of modern communications. But it will not be in vain. Thomson, already earning £275,000, will trigger a bonus of £275,000 for his efforts, the kind of reward of which most actuaries can only dream. Treves will be able to return a £240,000 bonus to his law firm Macfarlanes.

Looking ahead, Equitable will be a closed fund with assets of £20bn. Managing this effectively will be the real challenge ahead for the Halifax, now part of HBOS, which is due to take it over and inject a further £250m. In principle there is no reason why a 'closed fund' should not perform equally well or even better than one into which people are still paying premiums.

One of the characteristics of a closed fund is that the sales and promotional budget is instantly removed. So the management charges will be much lower. Unfortunately, there also is a view that a closed fund can be a forgotten fund. Why waste the talents of your star investment managers on maximising returns in a fund where the number of policyholders is shrinking? Managers are unlikely to win extra business if they were to outperform comparable funds in the market place.

Given the trauma and hardship for policyholders (including this one) already, it will be the responsibility of the Equitable board, its non-executive directors and the Halifax, to ensure that a slovenly approach is avoided. There is definitely a role here for John Tiner, insurance overlord at the Financial Services Authority.

The FSA, having failed miserably to plan for the future of Equitable after it was knocked back by the in July 2000, needs to make sure that its policyholders receive only the best of care now. Policyholders and their action groups must keep the pressure on for good performance. Nor should they ease off on the struggle for compensation, with reports still to come from Lord Penrose and the Parliamentary ombudsman (who gained recompense for Barlow Clowes investors).

Euro bias
THE euro continues to sink on the foreign exchanges despite more positive news from the German economy where the Ifo business confidence index has ticked up. It has had a torrid time since currency traders got it into their heads that America is on its way to recovery.

A weaker euro, currently worth just over 61 pence, will not bring much joy to British policymakers. The euro is proving a divisive issue, with reports that some members of the Bank of England's Court, its governing body, are taking a dim view of Sir Eddie George's relentless sniping at the 'one size fits all' interest rate policy.

As it happens, the Court has no direct jurisdiction over policy matters and is not much engaged in discussing great economic issues. It does have power to provide better resources in response to complaints that issues are not receiving a fair hearing. This certainly happened at the Monetary Policy Committee.

Theoretically then the Court would have the power to provide resources for further study of euro-related issues if it felt that the practical work being done by European director John Townend and his team was inadequate. But there is no sign of this happening.

Where the euro issue could play a serious role is in the selection of the next governor, due at the end of this year. It is unlikely that the Prime Minister, who has the final say, would happily approve another eurosceptic incumbent.

Candidates who fancy their chances will no doubt be seeking to burnish their euro-friendly credentials.