Act now on mis-sold endowments: new article

NEWDIRECTION_4

HI I'M NEW TO THIS POSTING LARK BUT BASICALLY I AM LOOKING FOR INFORMATION ABOUT HOW I CAN CHECK WHAT MY CLAIMS HANDLER IS TELLING US.
My hubby just retired after 23 yrs in army-he's 40 now. He was first FORWARD sold an end in 1984 at 18yrs for £20k. He was ordered to attend a brief!!! Then again in 1987 at 21 yrs he was sold another for £10k.
We'd got together and we're trying to buy a hse during the 1988 boom. An IFA told us after April 88 to cancel/amend the 1st to include me, this was worth £20k. He said to cancel the 2nd which was only about 6 months old and take out a new one through him in joint names for £20k. The house we were looking at was £25k and we had a 10% deposit. We ahd "40k end. cover by then!!!! He also sold us 2* £80 approx whole of life cover policies. Boy I wish we'd have known what we know now.
We kept getting gazumped so we decided to live in M. Quarters instead. We were confident we were doing the right thing financially for my hubby was told each month paying an endow. was one less mortg. payment!
In 1989 an Ifa from the first company who'd sold the 1st two to hubby called to see him and sold us another -he said it was just for savings as the other plus bonuses would be up to £80k in total. Boy do I wish we had that camcordered.
We then cancelled this one about 1.5 yrs later because we were unable to afford it.
In 1991 hubby had had a couple of promotions and thoughts went into taking care of our future again so we saw another IFA who had offices on a camp, he sold us a £26k policy over 25 yrs.

We have a special needs child and no time so we opted for a claims company-I know it's not the best path for all but it has gone badly wrong.

Last November they wrote to the IFA for the 2 * £20k policies and he wrote a very insulting letter back calling them buffoons and us liars and cheats - so they reported him to the FSA for non compliance. They then forgot to refer it to the FSO. He, the IFA had threatened us all with legal action! I do wonder if that caused them not to pursue it further.

We 5 matters with them (claim handler) and due to their bad admin they want to try and compensate us in line with what FSO might have awarded but only for the 2nd one bought in 1988. Because value from 1984 policy was transferred into !st joint one we bought ( remember we got 2 in 1988) they say that even though previously they approached the nasty IFA they can no longer pursue compensation as it's original policy was sold in 1984.

How do I know the offer they made us is correct?

Our case is complicated because we did have them attached to a mortgage in 194-1997 but we moved back into qtrs. You see back then with £67 k in endow. and a military gratuity we thought we'd buy a house for cash.

We thought property booms were one offs and we believed our third IFA who's written promise " your first two policies will probably pay off any mortgageing you have at that time"

Well all the policies run way past hubby's intended and compulsory retirement. Whilst we lived in Germany BOOM BOOM happened and we are now still paying excess rent and living in M Qtrs waiting for an eviction notice!

If we cash in our policies we lose our bonus but if we wait we have to find cost of endws on top of a repayment mortgage.

I wonder if other ex or serving military are in this same boat?

I spoke to FSA who said claims handlers are not regulated and it's a TRADing Atandards job! but my house insurance say I can claim against the claim handlers for breach of contract.

All we wanted was our claims handling! so we could be free to care for our child! and know our financial position to buy a home!

defender_of_the_weak

In the letter from the IFA did they give you notice of reference to the FOS. This should have had a six month warning. For anything sold before April 1988 the IFA can just reject the complaint anyway and you have no right of referral to FOS for this one anyway so I am at a bit of a loss to understand why they even pursued this part of your complaint.

If the claim handler has put their hands up to making a mistake and offering to put you back in the position of it being upheld, this is probably not a bad deal. Cases involving IFAs invariably drag on for years, particularly if the IFA is 'difficult' so you may actually be in a better position by accepting the offer than if it was fought all the way through FOS.

dunstonh

[FONT=Arial,Helvetica,sans-serif]We just got this general message sent to us [/FONT][FONT=Arial,Helvetica,sans-serif](snipped a few bits)[/FONT][FONT=Arial,Helvetica,sans-serif]
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[FONT=Arial,Helvetica,sans-serif]To Principals of Member Firms with Standard Life Mortgage Endowment complaints settled during 2006[/FONT]
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[FONT=Arial,Helvetica,sans-serif]Standard Life has recently identified a problem with surrender values calculated between 1 January 2006 and 29 May 2006.[/FONT]

[FONT=Arial,Helvetica,sans-serif]Where these were used in calculating redress in connection with Mortgage Endowment complaints, the surrender value may have been too low and hence the redress too high.[/FONT]
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[/FONT][FONT=Arial,Helvetica,sans-serif]Where your firm is due a refund we will collect this as soon as we can, and credit it to your commission account - or refund it to PI Insurers as applicable. Standard Life has said that it will try to settle claims within 6 weeks of receipt of the necessary paper work being received.[/FONT]

[FONT=Arial,Helvetica,sans-serif]Standard Life estimate that in affected cases the surrender values should have been - on average - £240 higher. Consequently - on average there should have been a similar reduction in the compensation paid to consumers.[/FONT]

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[FONT=Arial,Helvetica,sans-serif]Whilst this applies to IFAs, it also applies to anyone that surrendered their SL policy during that period as well as those that got projections (as SL usually project from the surrender value). Those that sold their policies to third parties may have got more but they are unlikely to have any comeback with the new assigned owner benefiting.[/FONT]


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mayb_2

Not sure that I follow that one dunstonh - I presume this only affects IFA's comission as those people putting in the complaints would either have received the money as surrender value or as redress for the misselling and the total received would be the same? Unless of course they surrendered or sold their policies without making a complaint and then they have been shortchanged.

dunstonh

I presume this only affects IFA's comission as those people putting in the complaints would either have received the money as surrender value or as redress for the misselling and the total received would be the same?

It has nothing to do with commission apart from them compensating IFAs using the commission payment system.

Basically, SL miscalculated the surrender values on plans between those dates. That means that surrendered plans got a lower surrender value than they should. It also means that on upheld complaints, people got higher redress than they should have.

Those selling their endowments to third parties would have been asked to supply the surrender value and the amount they got would have been based on that. If the surrender value was undervalued in error, those people lost out.

mayb_2

I thought that redress put you back into the position you would have been in if you had had a repayment mortgage rather than an endowment mortgage. That is why it is called redress and not compensation. This means that the amount that the complainant was paid was based on that rather than the surender value. This cannot make any difference then to the complainant surely or the total amount they received.

You are also saying that those selling on their endowments lost money through the misscalculations of SL but wont be entitled to claim for that?

dunstonh

I thought that redress put you back into the position you would have been in if you had had a repayment mortgage rather than an endowment mortgage. That is why it is called redress and not compensation.

Correct.

This means that the amount that the complainant was paid was based on that rather than the surender value.

The surrender value of the endowment is used in the calculation to work out the difference. So, if the surrender value is wrong, then the redress will be wrong.

This cannot make any difference then to the complainant surely or the total amount they received.

Very simple terms, the cost difference between the monthly payments of the endowment mortgage and interest only are compared against the repayment mortgage and life cover (usually endowment works out cheaper here). Then you have to work out what the balance of the repayment mortgage would be at that point. That is then compared with the interest only balance minus the surrender value of the endowment.

Hence why the surrender value is important.

You are also saying that those selling on their endowments lost money through the misscalculations of SL but wont be entitled to claim for that?

Correct. As I understand it, those that surrendered will receive an incremental amount. Those that kept the endowments will see no difference. A "sold" endowment is still running but the original owner doesnt own it any more so the gain will be made by the new owner would got it a little cheaper than they should have. Which means the old owner got a little less than they should have.

mayb_2

[I

]Standard Life estimate that in affected cases the surrender values should have been - on average - £240 higher. Consequently - on average there should have been a similar reduction in the compensation paid to consumers.[/I]

This quote from your letter refers to compensation paid to consumers - not redress. It would appear to suggest they believe that consumers were overpaid which is clearly not the case.

Does this sort of thing happen very often?

You have said in the past that a lot of the projections made by companies now do not reflect the real value of the endowments because of the rules governing these. That means that the projections of shortfalls are not always representative of the true position of a fund. As you said in the case of Fullspizz.

Therefore, I wonder, does that mean that a lot of endowments are undervalued at the time of calculating redress because of being projected in this way?

If so then these situations are leading a lot of people into claiming misselling and being shortchanged on the real value of their policies and also being lead into the position of cashing in what may be a viable endowment policy.

Who does this benefit?

dunstonh

Does this sort of thing happen very often?

Some companies are more prone to errors. Most dont result in financial loss. Some are really prone to it. Pearl on version 2 & 3 pension plans are notorious for showing the incorrect valuations. They have two computer systems with these plans requiring updates on both. Very often one gets updated but the other doesnt (i.e. premiums cease and the person doing the work does one system but not the other).

Call centre information is usually the worst as the person you are asking the questions to usually doesnt have a clue what you are talking about and will just repeat what is on the screen.

You have said in the past that a lot of the projections made by companies now do not reflect the real value of the endowments because of the rules governing these. That means that the projections of shortfalls are not always representative of the true position of a fund. As you said in the case of Fullspizz.

Yes. This mostly applies to conventional with profits plans which were designed before the requirement to have a daily value to project from. The only daily value available was the surrender value.

I also came across a Norwich Union projection a few weeks back which I have just finished working on as a policy review for a new client and that projection does not include the accrued terminal bonus. That TB is worth £5093. The shortfall is less than that on the projection at middle rate so the client thinks they are getting a shortfall but as it currently stands, its actually on track for a surplus.

Therefore, I wonder, does that mean that a lot of endowments are undervalued at the time of calculating redress because of being projected in this way?

Only the older ones as mentioned above. Unit linked endowments dont have this problem as they, by nature, have a daily value. Although the redress calculation does come from the surrender value. This can actually lead to a misleading impression of the true status of the policy.

example. Current value is £30,000 but surrender value is £25,000. If the redress payable is less than £5,000 (the difference than the current value and the surrender value) then the endowment is very likely to be on track to hit target. Its only because there is a surrender penalty that the person is getting redress. Not because the actual value of the endowment is low.

Equally, you could get a better impression than an endowment deserves. A bad one with no surrender penatly may give rise to no redress but still come in way short. So, you cannot apply a single rule to every endowment.

If so then these situations are leading a lot of people into claiming misselling and being shortchanged on the real value of their policies and also being lead into the position of cashing in what may be a viable endowment policy.

Its not so much that they are being shortchanged. Indeed, many people are going to get redress for their complaint and still end up with a surplus at the end. Its the people that have surrendered viable endowments that have lost out and those that are holding on to unviable endowments hoping they get better that will also lose out.

Who does this benefit?

The weak, low solvency insurance companies who couldnt afford to underwrite the shortfalls over the next 15-20 years. This system suits them alone. The stronger companies with the decent funds will lose out more as they are the ones that will pay the redress (as it was calculated directly after a stockmarket crash) despite the increased chances that their endowments will go onto surplus positions. Although the with profits policyholders will lose out as well as their bonus rate is lower because of this.

dunstonh

It doesnt just happen on endowments. Pearl have recently done a vicious thing with their pension projections. Pearl "prosperity" pensions (also known as version 1) are in their 6th year of zero bonus. Its going to be at least 20 years, if ever before you see any real bonus on there again.

Pearl were losing funds by the millions as IFAs like me were transferring people out of there. They are a doddle to justify and quite often the Pearl projections showed a lower value at age 65 than the current value. If you left it there, it would go down and that was assuming a growth rate of 5% p.a. (on SMPI basis). Remember Pearl are on 0%.

So, what did Pearl do? They increased the projection rate on their client projection to 6% (SMPI basis). Therefore it pushed all the projection values up. However, its still on zero bonus. It now makes it just a bit harder for an IFA to justify. Not for your experienced or "independent" IFA. However, those IFAs that are employed or have compliance departments with an over sensitive set of rules or an inexperienced IFA would be put off. This is because 1 - the 6% SMPI Projection is not used by any other provider so you cannot get a like for like comparison unless you have specialist software. 2 - the Pearl projections at 6% SMPI will look much better than a 6% SMPI basis illustration using TVAS software because Pearl's charges are implicit whereas modern contracts are explicit (in other words, Pearls are behind the scenes and not taken into account but the alternatives are).

I get business from other IFAs passing potential pension transfers to me because their network/compliance dept wont allow them or they dont have the knowledge to do it themselves.

If thats the case with other IFAs, how do you expect the average consumer to know. They have seen their pension projection increase over the last year. They think its doing better but its not. Its just an example projection using a totally unrealistic rate and the value is almost going backwards.