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The Actuary The magazine of the Institute & Faculty of Actuaries

Boot Brendan

To me there is all the difference inthe world between the followingtwo approaches, even if the financialoutcome is similar.

  1. Declaring bonuses having regard to the (GAR) option in the policy and then saying ‘but if you can’t, or don’t wish to take advantage of the option then we will enhance the benefits to give you full value’ – the approach that Brendan McBride (letters, June issue) says Scottish Widows used.
  2. Declaring bonuses ignoring the option and then saying ‘but if you exercise the option we will take some of them away again’ – the Equitable approach.

The first approach, of course, requires the actuary to adjust bonuses well before the option starts to bite, to maintain equity with other classes. And even on this approach it is better still, when possible, to offer other forms of annuity, such as ‘guaranteed five years’ or ‘joint lives and survivor’, on terms equivalent to those in the GAR option; but I realise that this will not always meet the needs of the policyholder.

It is regrettable that Brendan does not recognise this difference, and its obvious influence on the House of Lords’ judgment – indeed he seems to prefer the second approach – as this casts doubt on his other points which make a serious contribution to the debate.