Equitable Life policyholders who took out their policies after January 1st, 1999, will incur a 10 per cent penalty if they cash in early.
The group, which has 25,000 Irish policyholders, had previously stated there would be no charge for early encashment of policies but has been forced to reverse this because of the number of people cancelling their policies.
The 10 per cent penalty will apply immediately but policies, such as pensions, which are due to mature around now will not incur a penalty with en cashment.
The 10 per cent charge is calculated based on the policy value at the date of encashment. It already applies to policyholders in the UK. Mr Noel Creedon, managing director of Equitable Life in Ireland, said yesterday it had reluctantly taken this decision to protect the assets of its investment funds for policyholders.
"In the light of the high number of early encashments an actuarial decision was taken to protect the assets of the fund. The early encashment, if allowed to continue unadjusted, could have had a negative effect on values of policies continuing in the with-profits fund," he said.
Many of the encashments so far have been from policyholders who are very early into their contracts. He added that those who were cashing in policies taken out in the past couple of years were taking advantage of bonuses in 1999 and 2000 exceeding the earnings on the assets for those years.
Mr Creedon said that up to 9 per cent of its almost 15,000 Irish with-profits policyholders had sought to cash in their policies in the past two weeks.
The biggest rush was in the two days following the announcement earlier this month that Equitable Life was ceasing to sell new policies because it was unable to find a buyer for the business.
A new owner was required to restore the capital strength of its with-profits fund after it was confronted with liabilities of £1.5 billion (€1.9 billion) having lost a crucial case in the House of Lords. The case related to the group's controversial treatment of holders of guaranteed annuity policies.
Returns on Equitable Life's with-profits policies are expected to fall because of the requirement imposed by the British financial services watchdog, the Financial Services Authority, that it adopt a more cautious investment approach. The authority has said it will review events which led the troubled mutual assurance firm to close its doors to new business.
The FSA, which oversees the British financial services industry, has been criticised for allowing Equitable's situation to deteriorate to a point where it was unable to find a buyer.
