I apologise most sincerely on behalf of the whole board to members, policyholders and staff that this has come about

John Sclater, Equitable president

The Equitable, founded in 1762, remains solvent and will continue to pay out benefits and accept premiums under existing policies.

Equitable put itself up for sale in July after the High Court ruled it must honour pension guarantees totalling about �1.5bn - something the company on its own can not afford.

Sales force sale

Potential bidders, including CGNU, Eureko - a European financial services consortium - and Prudential, had been interested in the society, but none made firm proposals.

The society said it continued to have talks with a number of parties who were interested in buying some of its operations - such as its sales force - but these discussions were at an early stage.

John Sclater, Equitable's president, said: "The intention of the sale process had been to make good the transfer of value from non-GAR policyholders which resulted from the House of Lord's judgement.

Equitable advice line

0870 900 8020.

"In the event, this loss of value is unlikely to be restored to policyholders.

"I apologise most sincerely on behalf of the whole board to members, policyholders and staff that this has come about.

"We remain committed to generating the greatest possible value from the sale of some of the society's operations and providing the best possible service to policyholders."

Minimum payouts too much

The court battle focused on Guaranteed Annuity Rate (GAR) policies sold by Equitable Life, which allowed policyholders to opt for minimum pension payouts and land a bonus when their policy matured.

About 90,000 Equitable Life policyholders out of a total of 500,000 have GAR policies.

They bought products with a guaranteed minimum annuity - typically �12,500 a year for �100,000 in pension savings.

The guarantees were made by many life insurers, but longer life expectancy and lower interest rates mean they are now much more expensive to honour than originally expected.

Court defeats

A shortfall in funding led Equitable to ask the GAR policyholders to accept a cut in their bonuses or give up their right to guaranteed annuity rates.

This led to an outcry among policyholders who launched the legal action alleging breach of contract and abuse of discretionary powers by the society's board.

Equitable Life won the first round of the legal battle in the High Court in September 1999 when a judge ruled that the society was acting lawfully in cutting final bonuses to GAR policyholders.

But the Court of Appeal overturned the judgment by a majority of two to one, ruling that the society was obliged to pay out the guaranteed rates and bonuses.

The aggrieved policyholders then won at the House of Lords in July.

Mr Sclater said: "This is a very sad day for all in the society - members and staff - but the board decided that closing the society to new business is the only realistic option now available."

Advice line

The society's closure to new business will leave its with-profits fund and its unit-linked funds intact.

However the loss of growth in with-profits policy values from January 1 to the end of July of this year was now unlikely to be restored, it said.

The loss of growth on policies during this period equates to around 5% of policy values as at the end of July 2000.

In addition, the investment constraint on the with-profits fund was likely to lead to lower investment returns going forward.

The society said policyholders who were making regular contributions could continue to do so, although with-profits policyholders should consider the impact of the likely lower investment returns on their savings over time.

Unit-linked policyholders' savings are unaffected.

The Equitable said it recommended that policyholders should take advice about whether to pay more into their policies, and gave an advice-line number of 0870 900 8020.