The move, which takes effect from 1 April, means Equitable Life will add a quarter of the policy amount when it matures or is transferred – up from the previous 12.5 per cent figure.
The change is expected to affect around 345,000 policyholders and while many may now be tempted to transfer their funds as there is no longer a penalty, others may stay in the hope of further increases.
Equitable Life, which almost went bust in 2001 after making unaffordable promises on annuity rates, said it could pay for the increase because it has reduced risks to the business and freed up capital. Equitable Life chairman Ian Brimecome said: “This is a further momentous step for the society. We consider the new capital distribution of 25 per cent to be the best example of recreating policyholder value at the society for many years.”
Danny Cox of Hargreaves Lansdown commented on the changes yesterday: “Policyholders who have stuck with the Equitable have finally been rewarded.”