Thousands of pensioners trapped in failing Equitable Life with-profits annuity funds were granted fresh hope this week as the beleaguered insurer said that it would hand their policies to Prudential.

The £1.8 billion fund transfer is expected to affect 50,000 Equitable annuity customers, many of whom have seen their retirement income fall by almost half since investing their life savings in the fund.

Analysts suggest that the announcement may signal similar changes for the rest of Equitable’s 230,000 with-profits policyholders.

The Equitable with-profits annuitants are expected to benefit from the move, on which eligible members will vote in October, because of the higher returns that Prudential has delivered. Since 2000 the investment return on Prudential’s with-profits fund has been almost double Equitable’s because it has invested more heavily in better-performing assets, such as equities and property. Equitable, however, has been forced to keep the bulk of its investment in less profitable but safer fixed-interest assets since the company’s near collapse.

Anthony Collet, of Evolve Financial Planning, the independent financial adviser (IFA), says: “Prudential’s with-profits fund has performed relatively well thanks to its asset mix. It has lived up to its name and been cautious.”

Prudential says it will manage Equitable policyholders’ money in line with existing investment strategy, but they should not expect immediate increases. David Belsham, Prudential’S chief actuary, says: “There will be transitional changes, so we do not expect returns to be affected until at least the end of next year.”

But some experts cast doubt over whether annuitants will benefit. Andy Bracken, of Timothy James & Partners, another IFA, says: “It looks good, but it may not make much difference. Policyholders may feel safer under the Prudential umbrella, but who knows if the predicted long-term growth will happen? If growth in equity and property slows, it will have a negative impact on returns, regardless of how strong they have been in the past.”

In a separate announcement, Prudential nominated a policyholder advocate to oversee the possible reattribution of the £8.7 billion inherited estate of the insurer’s with-profits fund. Equitable customers transferring to Prudential would not be eligible for any of the proceeds.

Equitable is already sending letters to with-profits policyholders to explain the deal. They will receive voting packs in September.

CASE STUDY: Small consolation

Joe Arthur, 77, and his wife Jean, 74, have watched the retirement income from their Equitable Life with-profits annuity fall by half. The Essex couple invested £13,000 in the fund 11 years ago. Initially, they received an income of about £70 a month, which has since diminished to about £35.

Mr Arthur, who left school at 14 and worked in a manufacturing industry for 51 years, says: “Equitable Life needs to be sorted out, but in the scheme of things it doesn’t look like this deal will make that much difference for us.

“Prudential is a well-known name, which is a good thing, and we may feel a bit better, but will this help us get back the money we have already lost? I doubt it. Fortunately, we are not dependent on our annuity, but it can’t be much consolation for those who have struggled by for many years on low incomes.”

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained