endowment compensation calculation

hammy_the_hammer

i have had my complaint upheld and received a compensation figure from standard life. they initially didn't send me the calculations but did when i queried their omission. cutting a long story short it would appear that because i made a lump sum payment to my mortgage account when i started to recieve the shortfall letters this payment has been used to reduce the amount of compensation i am entitled to ie they just treat it as a payment made both for the endowment figure and the repayment figure. i explained that this payment was scraped together so that we didn't have to deal with the shortfall after my wife retires. all the info from everywhere says making extra payments off your mortgage is a recognised way of dealing with the problem ....i appear to have done that and been penalised .
any info, advice or similar story greatly appreciated thanks
alternatively can anyone point me to a direct link on how the calculations are made ( fsa website or similar )

hammy_the_hammer

if no one can advise on the nitty gritty can you point me in the direction of a link that shows how the calculations are worked out ( fsa or similar ) many thanks again for your trouble

dunstonh

Dont think there is a link anywhere. I dont recall one ever being pointed out. It isnt a simple calculation and its done by software not by hand.

YorkshireBoy

dunstonh wrote:

It isnt a simple calculation...

You're not kidding there dunstonh!!

My offer of compensation arrived today and I've had two attempts at getting my head round it so far this evening - and I'll need a 3rd tomorrow as well.

Regarding the links to calculations, if you search the https://www.fsa.gov.uk site for 'endowment compensation calculation' it returns 200+ hits. The best (and 3rd on the list) I can find is this one...

http://www.fsa.gov.uk/consumer/pdfs/endowment_compensation.pdf

It's not comprehensive, because it doesn't factor anything in for 'decreasing term assurance', but it may help the OP.

On the subject of the OP's overpayment, I've had an interesting conversation with my mortgage lender recently about a similar situation - indeed, they've agreed to re-do the calculation based on the (very large) monthly overpayments I've been making over the last 4.5 years (as opposed to the OP's one-off payment). I told the lender that I would have made these payments anyway, regardless of whether I'd had a shortfall letter or not, because my wife had returned to work full-time.

The assessor insisted on doing the calculations again because he felt sure that I would benefit because of this. When I questioned what would happen if the second calculation returned a lower compensation figure, he stated that I would be given the higher of the two figures.

Poppy9

I wasn't happy with the offer letter calculation I got.

The main figure I was unhappy with was the amount of capital that would have been repaid if I had taken out a repayment mortgage. It was lower than my surrender value. I input the figures on an excel spreadsheet which has a tool for calculating principal/interest repayments and my figure was higher by £1000. My IFA who was visiting me for another reason also offered to check it out. He contacted two lenders who both confirmed that the capital repayment would have been about £1000 higher than that stated on the offer letter.

I've asked for a detailed breakdown of their figures to see how they have arrived at the lower figure.

YorkshireBoy

@Poppy9

Now that's very worrying, because the FSA document I linked to above states...

I have been offered compensation, how do I know that it is a fair offer?
When calculating endowment mortgage compensation, firms are required to follow guidance issued by the FSA. Therefore, if the firm has offered compensation in accordance with our guidance, you can assume it is a fair offer.

Poppy9

YorkshireBoy wrote:

@Poppy9

Now that's very worrying, because the FSA document I linked to above states...

Note it says 'assume' not 'assured' that it's a fair offer. Their calculations will depend on what assumptions they have made and what interest rates they have used.

YorkshireBoy

Poppy9 wrote:

Note it says 'assume' not 'assured' that it's a fair offer.

Agreed. But there will be many (less financially astute) people who see this statement and 'assume' the figure is correct because a) the lender 'says' they have worked it out to FSA rules, and b) the FSA say the above.

If, as a financial illiterate (and I'm not BTW ), I'm told by a Government body to 'assume' the calculation is correct, then who am I to question this statement?

Poppy9

YorkshireBoy wrote:

Agreed. But there will be many (less financially astute) people who see this statement and 'assume' the figure is correct because a) the lender 'says' they have worked it out to FSA rules, and b) the FSA say the above.
?

Yes agree. The FSA hope that their statement will reduce the number of people complaining about their offer to them. They just want the whole situation to go away without too much ado!!

However luckily we have this site which tell us not to take everything at face value.

defender_of_the_weak

Some of the big companies also load the calculation and interpret the guidelines to make the outcome as least favourable as possible, oh and some of them are just too incompetent to use the right facts and figures.

Getting the reviewers to admit they have made a mistake is ofen far from easy as they all chant the mantra 'we have followed the FSA guidelines' even when they have the wrong client and mortgage history