Approximately 90,000 policyholders in Equitable Life hold pension policies with underlying guaranteed annuity rates (GARs) exercisable upon retirement.These policies were purchased in the 1960s, 70s and 80s when annuity rates were much higher than they are now.

Once the policies were established all premiums paid in accordance with the terms and conditions of the policy secured further guarantees.

Therefore, even though the guarantees were removed in the late 80s, additional premiums continued to enjoy this increasingly valuable benefit.As GAR policyholders came to retire they became entitled to apply the guaranteed rates, choose current rates or to take an open market option to an alternative provider.This position caused Equitable Life real difficulties as the following example demonstrates.John Smith has a retirement annuity contract with Equitable valued at £300,000 including the final terminal bonus.-- Option 1 -- under current annuity rates this would buy him a single life level pension at age 60 of £23,730 per annum.

This is also the open market option.-- Option 2 -- using the policy guarantees he could theoretically take a pension of £30,960 per annum (30.5% higher).

However, Equitable took the view that it could unilaterally reduce the terminal bonus so that the underlying fund could only provide the pension of £23,730 illustrated in option 1 after applying the guaranteed annuity rates.

This effectively reduced the fund to £221,320.-- Option 3 -- take the open market option of £221,320 to another company.In essence Equitable tried to move the goal posts and the GAR policyholders sued, eventually, after appeal, with total success.This result left Equitable with the following problems: inadequate reserves; a reduction in the potential for achieving good investment returns; the reduction of non-guaranteed bonuses in respect of past investment returns; recent stock market falls have caused a reduction in value; a huge loss of consumer confidence.From this position the society sought a white knight and the Halifax agreed to purchase the administrative, marketing and sales arm of the organisation but refused to take the with-profit funds together with the attached liability.As part of the package, the Halifax offered to make available additional monies if liabilities could be capped with a compromise deal and if the sales team could achieve certain targets.As the difficulties came to light, penalties applying to policyholders' funds transferred away from the society outside the normal contractual terms have varied between 5% and 15%.

It is currently 7.5%.

Annual bonuses being withheld thereby by implication reducing returns by approximately 4%.

Non-guaranteed bonuses have been removed from all pension policies causing fund values to fall by 16% (14% on life policies).Against this background Equitable has put forward a compromise offer as a rescue package designed to placate policyholders and cap the society's liabilities.

A summary of the provisions are as follows:-- GAR policy funds would be increased on average by 17.5%.

Generally the spread of increase ranges from 3.5% to 20.4%.-- Non-GAR policy funds would be increased by 2.5% across the board.These increases are conditional upon the following:-- The waiver of all rights to guaranteed terms by all GAR policyholde rs.-- The waiver of all rights to make a claim for compensation payments in respect of misselling by all policyholders.

(Clearly this cannot extend to ex-members of the society who would retain a right to make a claim for misselling.)-- The addition of £250 million by the Halifax in return for the liabilities being capped.-- The addition of a further £250 million which remains non-guaranteed and which is dependent upon the achievement of various sales and marketing targets by the new Halifax-Equitable salesforce.

Clearly this part of the increase is in some doubt.The society has said there is no fallback position, the compromise offer is the only way forward.

If it fails, the outlook for the company is bleak.What problems remain?-- The proposed compromise still leaves policyholders facing loss.-- Nothing in the compromise provides any surety that additional bonus cuts and penalties are a thing of the past.-- If sales targets are not achieved then 1.1% of the proposed increases, that are dependent upon the second input of £250 million by the Halifax, will be removed.

Analysts presume that those monies will not be available for addition to maturity or transfer values until sales results and marketing targets are known.-- The analysts are unclear of the society's position as many policyholders have taken the benefits or removed funds from the institution and that process continues.Policyholders with guaranteed annuity rates now find themselves in real difficulty.

The rescue package on average is worth 17.5% of an individual's total fund.

Taken with losses suffered through cancellation of the guarantees the average net loss post compromise will be around 24%.

This is not an option likely to find favour with many.If policyholders do not have guaranteed annuity rates attached to their funds, again the rescue package leaves little to cheer about.

The average post compromise loss in the value of their funds is more than 8% including the 2.5% rescue package uplift, assuming all goes well in the future.

This too is far from being the deal of the century.What action should an individual take? Unfortunately there is no absolute answer.

Some will argue that Equitable cannot survive and losses should be cut.

The new board itself argues that although mistakes have been made in the past, there is a new strategy and there is no need for panic.No adviser can give specific advice on this generic position but perhaps it is useful if some guidance is provided.Subject to individual circumstances, GAR personal pension policyholders older than 50 and GAR retirement annuity policyholders older than 60 may well find real advantage in taking guaranteed benefits immediately.

Those yet to reach those ages cannot draw down the benefits and should wait and see how the voting affects the position.

Obviously additional damage could result as funds dwindle.Non-GAR policyholders have limited options.

The transfer option is costly.

On balance they should probably vote in favour of the compromise deal on the table and thereafter reassess their position.With-profit annuitants who gave up guaranteed benefits in favour of a with-profits annuity may feel that there are good reasons to vote against the compromise.

Many policyholders were sold, in addition to their pensions, Equitable Life bonds.

While the value of those bonds have suffered, it is unlikely that the appropriate advice is to wait for a restitution of those losses.

Subject to maturity dates it must generally be in those individuals' interest to transfer those funds as soon as po ssible.

The timing of the maturity or other contractual withdrawal date is key.Finally, many argue that Equitable Life's days are numbered.

If there is a mass exodus then the society will most probably not survive.

Today, there is an outflowing of funds and against this background and the current global economic difficulties, a rapid recovery in future investment performance would be surprising.It is imperative that everyone concerned takes advice without delay.

The boat is upon the rocks and no one knows how, if ever, it will re-float.

There should be no panic jumping over the side but if a lifeboat is to hand it may be a most attractive option.