Equitable Life has heaped more bad news on customers by slashing with-profits pension funds by 16%.

This means that the value of a pension worth �50,000 at the end of last year will be cut to �42,000.

The troubled life assurer also announced that it was cutting bonuses on life assurance policies by 14%.

"Difficult times require difficult decisions," said Equitable Life chairman Vanni Treves.

But the news caused outrage amongst the society's with-profits policyholders, who have already suffered several setbacks this year.

"They are very angry and scared, frankly," Stewart Bayliss of Annuity Direct told the BBC.

"Today's announcement has been life-changing."

Trapped

The news is a massive let-down for policy holders, according to the BBC's business editor Jeff Randall.

The society tried to discourage customers from jumping ship by raising the get-out penalty to 15%.

Now that the value of pension policies has been cut by 16%, customers would have been better off leaving in the first place.

This exit penalty has now been halved to 7.5%, but customers would first have their fund devalued by 16% since the devaluation is effective immediately.

Falling stocks

Equitable Life said the action was vital for the long-term interest of the society.

It attributed the decision to the declining stock markets and the large number of policyholders currently retiring and taking their benefits.

"Given the impact of market movements, the board believes that this action is absolutely necessary and is in the long term interests of policy holders," said Mr Treves.

But pensions are long-term investments and should not suddenly plummet just because the stock markets have fallen for one year.

"We very much regret the need to reduce bonuses and the great concern this will cause policyholders, particularly after the disappointments they have suffered in the past year," he added.

Lost battle

Equitable Life - Britain's oldest life assurer - put itself up for sale last year after it lost a court battle.

The House of Lords ruled that the society must honour the bonuses that it promised to 90,000 policy holders with Guaranteed Annuity Rates (GAR) pensions.

That ruling left Equitable with �1.5bn of liability.

The society has sold its operating units to the Halifax and is now forging an agreement between GAR and non-GAR policy holders in order to cap its liabilities.