Troubled mutual Equitable Life, which has 20,000 members in Ireland, yesterday warned with-profits annuitants that their pensions were set to drop by up to 29 per cent.

Policyholders affected yesterday received letters from the society informing them of a series of moves, including a 20 per cent reduction in annual payouts and the scrapping of interim bonuses, which will lead to the fall.

With-profits annuities are complex products that provide holders with an income during retirement. Unlike standard annuities, which guarantee to provide someone with a fixed income for life, with-profits annuities remain invested in the society's with-profits fund and pay an annual income based on the fund's growth and an anticipated bonus rate when the policy was taken out.

Chief executive Mr Charles Thomson said: "We understand this is a very unpleasant shock for these with-profits annuitants."

But he added that the society had to bring these policies in line with other with-profits ones.

Until yesterday with-profits annuitants, who cannot move their investment from the society, had survived relatively unscathed. While policyholders have seen their investments fall by around 20 per cent since July 2000, annuitants have had a positive return of 14 per cent.

The life assurer, which yesterday published its interim accounts for the six months to the end of June, also warned that there was a possibility it may not be able to meet its regulatory capital requirements. But the society stressed that it remained solvent.

During the six months, Equitable saw free reserves fall from £1.1 billion (€1.72 billion) in December to £382 million, although the figure has been stable since then. The society said the fall was largely due to investment losses, paying terminal bonuses on maturing policies and increasing provisions for compensation to certain former policyholders.

In the first half of the year policyholders took more than £1.16 billion of funds away from the society, more than double the withdrawals for 2001.