Large fall in final maturity value

The_Seasider

This is my first post and I am wondering if anyone can advise me.

This month has finally seen my Endowment policies mature. I've been notified about the under performance of all the policies and indeed all the final values have been sigificantly below the original forecasts. I took the appropriate measure to ensure I had covered any shortfalls.

However one final particular policy with Royal Scottish Assurance is a unit linked policy and we are aware that the final maturity value depends on the number of units held and the bid price on our maturirty date.

The original policy was for £21,500 over 16 years from June 1992 paying £60.10 a month and we received notification that our current valuation as at 9 May was that we held 5006.78 units at a bid price of 309.20 and a current value of £15480.97.

We had one further premium to pay in June before maturity.

You can understand again our disappointment of the poor performance of another of our funds but this did not prepare us for the shock and incredulity of the letter we received on the 27th June informing me that the final value of my policy was £14454.22

So whilst we added our final £60.10 premium to our fund, in the background the policy value had plummeted over a £1000 in the space of that month!!

What on earth is going on surely when a policy is about to mature these fluctuations could not be stabilised close to final payout for a policy to lose over 6% of its final value in such a short space of time beggars belief.

Since there were no bonuses to be added during the course of the term or at the maturity date, the encashment value of the units at any point in time is the value of the policy therefore we could have at least been offered the opportunity to cash this in a month earlier if nothing else it would have saved us a final wasted monthly premium.

I understand the value is based on the performance of the stock market but surely the effect of the rise and fall of the index should not decimate the final maturirty value of the payout by such a degree.

You place your faith in people and companies that are skilled to look after your investments. I might as well as dumped it it all on the colour black on the roulette wheel and watched it come up red at least I'd have had some measure of enjoyment in losing the money. :mad:

Is there any mileage in lodging a complaint with Royal Scottish Assurance over the huge difference in value?

Dick_here

You seem clear that you knew you had a unit-linked policy which would pay out based upon the value of units upon maturity or earlier surrender. Therefore it follows that you knew you could surrender - losing the life cover - at any point, so you have had every opportunity to surrender. Knowing all of that, surely you must have been paying attention to the stock market over the past month too, so why are you surprised that the value of your units has fallen ? Though I agree, a £1k drop is more than you would normally expect, but hey, these aren't normal times, are they ?

EdInvestor

This would appear to be another case where a policyholder is unaware that there exists a "cash fund" (like an interest paying savings account) into which money can be switched if markets are falling.

Further example of another unexpected shortfall at maturity on a policy allegedly on-track here:

http://forums.moneysavingexpert.com/showthread.html?t=998741

It's not good enough to say policyholders should have known or should have surrendered.They shouldn't be required to sacrifice life cover before maturity and possibly incur a penalty when there is an easy alternative option.Nor is it good enough to say they should consult their advisor - these policies are likely 25 years old and the advisor/salesman long gone.

The lifecos should write to policyholders advising them of the cash fund option where it exists.Anyone coming upo to maturity with a conventional WP policy should consider surrendering early in current market conditions, as the value could be higher than waiting until the maturity date.

wymondham

this is the 2nd post like this - is there a general problem with endowments about to finish plummeting in value?

Dick_here

There is bound to be with unit-linked policies at present !

Dick_here

EdInvestor wrote: »

The lifecos should write to policyholders advising them of the cash fund option where it exists.

Do they do this with a pension where the person is, say, over 50 ? I would hope so.

EdInvestor

!!!!!!_here wrote: »

Do they do this with a pension where the person is, say, over 50 ? I would hope so.

Err,no, not automatically.However as a result of a lot of drama over this after the last crash five years ago :rolleyes: there is now somthing called the "lifestyle option" with some pensions.Starting from around 55 your money is gradually shifted out of higher risk investments into lower risk.This is useful for people who plan to buy annuities. You do have to opt into it though.

Many people wouldn't want it, as it means you could miss out on a boom just before retirement.

As always, the message is "It pays to pay attention to your money!"

zarazara

14454-11539 [60.10 x 192 months]=2915
£2915 is all thats been gained for putting ll that money away over all those years. not even kept up with inflation i expect. thats terrible.

The_Seasider

!!!!!!_here wrote: »

You seem clear that you knew you had a unit-linked policy which would pay out based upon the value of units upon maturity or earlier surrender. Therefore it follows that you knew you could surrender - losing the life cover - at any point, so you have had every opportunity to surrender. Knowing all of that, surely you must have been paying attention to the stock market over the past month too, so why are you surprised that the value of your units has fallen ? Though I agree, a £1k drop is more than you would normally expect, but hey, these aren't normal times, are they ?

Thanks - I only knew apart from the other low cost endowments whereby I was advised that to ensure final bonus was paid to stay with the policies unil the end - in this case this was a particular policy based on units that were connected with the fall and rise in stock market - oh and this policy didn't pay a bonus at the end - that frankly is all.

At no stage was there any indication that I could so easily surrender this policy - not in the terms or anywhere for that matter nor was I ever encouraged to do so. In any case the suggested value on final maturity was the first time in the last 3 years a figure had been quoted by RSA. Therefore it was common sense to presume a payout with one further additional premium would have been roughly around the £15.5k figure qouted even if there was a slight fall off.

To fall by such an amount is frankly incredibly if we had continued this policy for a further 15 months at this rate there would have been nothing left in it!!

I pay a passing interest in the stock exchange like anyone else but assumed the policy required paying premiums right towards the end of its life. I've only myself stumbled across the information in my earlier post.

Amazingly it follows on from a letter whereby we expressed initial disapointment in the fact the policy was already over £6k short and we received a lengthy apologetic letter about the state of the stock market since 2003 - that bears nothing to the apology I'm going to require for such a disastrous final month performance!!

What a totally unsatisfactory product for paying off a mortgage we didn't want this in the first place but RBS threatened to pull the discounted morgage offer at the time back in 1992 if we didn't use this product. All our others policies were with Colonial mutual (Winterthur) where we wanted to continue and had already received an illustration from Colonial towards a new policy in fact a £21k policy would have earned some decent shares at least when it mutualised if nothing else even if the endowment record has been poor.

A complaint despite all the paperwork we had kept was not found in our favour - difficult to substantiate a verbal account and that despite keeing a record of the Colonial policy plan illustration which we could not use.

After 25 years of paying these premiums sometimes when times were difficult and I was on a extremely low salery you cannot remotely understand how annoyed and extremely bitter I feel about the whole affair.

EdInvestor

It seems to me this unit linked policy was missold.Clearly you had no idea that the policy might gyrate like this - your other experience was with WP endowments where volatility is smoothed - and had you known I imagine you would have rejected the policy as too risky.

Presumably you have received a "red" letter warning of the likely shortfall? When did you get that?You have to make a complaint within 3 years of receipt of that letter or you will be time-barred.

If you're not time-barred I would try making a complaint on the basis the sale did not properly take into account your attitude to risk.Keep it very short and sweet, and don't talk about the performance of the policy at all, as it's not relevant.

A one paragraph letter is fine.they have to prove they didn't missell, you don't have to prove anything.And it's very probable they have lost or destroyed the original file and thus have nothing to say.

EdInvestor

If someone makes a successful complaint of endowment misselling after an endowment matures in shortfall, having had the same mortgage on SVR throughout, presumably the redress money would actually cover the whole shortfall?