Endowment - loss of qualifying status.

Myrmidon_J

Hi,

The dreaded endowment policy rears its ugly head... Interestingly, not a complaint about the sale (admirably documented in the sales speak of the day), but about subsequent advice by the same Insurer.

Please see the following letter:

Dear Sir or Madam,

I write with reference to the above policy, which was sold to me on [DATE] by a representative of [Allianz Cornhill Insurance?]. I understand that the business was first purchased by Britannic Assurance and that it is now owned by Phoenix Life Limited. Therefore, I understand that I should address my complaint to you.

The unit-linked endowment policy to which my complaint refers was supposed to pay off the capital outstanding on the (interest only) mortgage that I held at the time.

However, my complaint does not concern the original sale of the policy (which I believe was documented correctly), nor the investment performance of the Phoenix BULA Managed fund – though somewhat disappointing. Rather, it concerns the advice that I received upon calling the previous insurer just two and a half [?] years into the term of the policy, in [DATE].

I said that since taking the policy out, I had decided to switch to a capital repayment mortgage [DETAILS].

I was advised to continue paying into my endowment policy but to substantially reduce the premium: £15 instead of £79 per month. I was informed that the policy would continue to grow and that it would provide a capital lump sum at maturity, even if this was not ultimately required to repay the mortgage.

I have only recently discovered the following:

That the policy has lost its “qualifying status”, such that:

• There is no longer a “guaranteed sum assured”,
• There is no longer any critical illness cover,
• There is no waiver of premium benefit,

And that:

• There may be an additional tax liability on maturity,

Furthermore, the adviser did not even mention the fact that although my premium had dropped by over 75%, the commission payment of [£17.50?] per year was unaffected. I have therefore been paying almost 10.0% [?] of my regular premiums as commission.

Finally, despite receiving advice over the telephone, I was not provided with any written confirmation or explanation of why this recommendation had been made. I received a Deed of Variation in the post, but no further details. I was therefore completely unaware of the consequences of the advice I had received until my partner explained the matter to me.


Taking all of the above into account, I feel that the advice that was offered was clearly and obviously unsuited to my (revised) needs. Please therefore treat this as a formal complaint.

I look forward to hearing from you.

Yours faithfully,

Etc.

(Obviously, I need to add the relevant details...)


Can anyone offer any advice - is there anything that I've missed?

Has anyone been in a similar position?
What are the chances of success in such cases?

Thanks!

dunstonh

You wouldnt have lost qualifying status. As long as the term outstanding after the changes was 10 years or more, then the policy would have qualified again and any changes would have no impact on tax.

Are you sure about the commission? Normally when premiums change there is a clawback. This would have hit the initial commission and the renewal commission, if any. A lot of tied agent plans didnt pay any renewal commission.

Obviously dont mention you work in financial services.

Myrmidon_J

dunstonh, thanks for the reply.

I had assumed that qualifying status was lost as the Deed of Variation - the only documentation my partner received - stated that the guaranteed sum assured was now zero. (Also that critical illness cover, waiver of premium, etc., were lost.)

I had understood, though admittedly I'm still fairly green when it comes to qualifying rules for life policies, that a qualifying policy had to have a guaranteed sum assured... And the odd rules about the extent to which payments in one year can exceed a certain percentage of payments in any other year...

It might be worth enquiring - rather than directly complaining - about the commission. Again, because no other documentation was provided, and the Deed of Variation did not mention charges, I'd assumed that the original terms would stand.

But then, I've not scrutinised the (very, very) small print of those terms and conditions with respect to charges!

Do you think that the complaint has any merit? In terms of suitability, I can't see how a tax-inefficient, restrictive policy with no benefits can be reasonably supposed to 'outrank' an ISA, for instance... And I can't quite get my head around the lack of documentation; it's hardly in the spirit of TCF!

I'm very grateful for your thoughts.

dunstonh

I had assumed that qualifying status was lost as the Deed of Variation - the only documentation my partner received - stated that the guaranteed sum assured was now zero. (Also that critical illness cover, waiver of premium, etc., were lost.)

When you said guaranteed sum assured, I thought you meant the chunk the bonuses are added to but a re-read of your post shows you clearly state it is unit linked. So, as its the life assurance figure then that would disqualify it.

Do you think that the complaint has any merit? In terms of suitability, I can't see how a tax-inefficient, restrictive policy with no benefits can be reasonably supposed to 'outrank' an ISA, for instance... And I can't quite get my head around the lack of documentation; it's hardly in the spirit of TCF!

An ISA would wipe the floor with it from a tax point of view. However, the potential snags are:
1 - if the person wasnt authorised and was just making you aware of options for you to decide what to do. (did they perhaps cross the line into advice)
2 - if it was an authorised tied agent then they are not allowed to recommend cancellation/replacement of existing plans. So sticking to options on that plan only may have been their only option to discuss within their remit. That may explain the strange choice made.

When was the recommendation made?

Myrmidon_J

Re: the snags. Unfortunately, I think you may have picked up on something...

The "advice" was offered in 2002, which is a long time ago. As I've said, no documentation was provided; it was merely a telephone call, which rather suggests that it's "our word against theirs".

I am willing to bet - with all the mergers and acquisitions - that no paperwork exists their end. So, the question of how to prove that advice was given is a tricky one.

My partner is absolutely adamant that advice was given. The adviser actively offered an opinion, rather than just highlighting options, yet did not explain any of the (potential) consequences - which include loss of qualifying status.

It was almost certainly an authorised tied agent who offered the advice. I don't think Cornhill ever had a non-tied agency, though I could be wrong.

Regardless, however, it cannot possibly be considered good practice to offer an opinion without explaining the consequences, and to not document the fact.

I would also suggest that there were many alternatives, even within the restrictive remit of one product - for instance, it would appear to be possible (I believe) to reduce the premium slightly, and retain the life / critical illness cover.

The sad fact is that my partner has ended up with the worst possible outcome, as a direct consequence of advice offered - and yet may be unable to effectively seek redress. Though we will try!

Thank you for your reply. Is there anything that you would add to the letter, or anything you might emphasise?