Endowment compensation offer - understanding the logic behind the calculations

Big_Den_2

Hi

Currently exploring endowment mis-selling claims on a few policies. I have received an offer from one company that seems low.

From the break down provided I can see how they arrived at the offer but I don't understand where they get the numbers from in the break down.

Surrender value is £9976
Amount they reckon we'd have paid on a repayment basis £11408
Compensation offer is £1432

but,

We've paid in £12860 to the policy since it was started.

They have also calculated the amounts using SVR over the period since 1997, however, we have since moved house, increased the mortgage and already changed to part & part (i.e. did not take out any more endowments) and have had a couple of discounted rate mortgages. If we provide details of these discounted rates and related periods would this change the totals in our favour (repayment calculation & therefore, compensation offer?)

We also had an issue with the fact that at the time we took this particular policy out, the advisor told us to go for a 25 year term even though we already had endowments that only had 18 years to run. The company concerned have dismissed this for two reasons: 1) time since policy was taken out exceeds complaint time limit and 2) they have sent a copy of a mortgage offer they say we had before the advisor spoke to us that details a 25 year term so we had decided on this already.

However, the advisor we dealt with was advising us on both the mortgage & the endowment and it was him who brought the mortgage offer/illustration (was only an offer in principle) with him when he also advised on the endowment. Not sure how we can prove this though plus they may still have us on the time limit issue.

Any advice or help would be appreciated.

Cheers

Den

Big_Den_2

Where's all the replies from the knowledgeable folks on this board?

Is it me?

26 views aswell :rolleyes:

Den

matto

If we provide details of these discounted rates and related periods would this change the totals in our favour (repayment calculation & therefore, compensation offer?)

If you provide the details they can do a more accurate calculation which is surely what you want?

Big_Den_2

matto wrote:

If you provide the details they can do a more accurate calculation which is surely what you want?

not if it means a reduced offer on what already seems low

Den

dunstonh

the offer isnt something you can haggle over. The calculation is defined and a small amount of redress usually means that endowment has worked out cheaper. Redress of £1432 probably means the endowment is on track to pay mortgage (based on current value as redress uses surrender value).

payless

Surrender value is £9976
Amount they reckon we'd have paid on a repayment basis £11408
Compensation offer is £1432

thats a bit simplistic ... some companies will also look at the differences in the total monthly payments based on Interest + endowment VS capital & interest ( with or without life cover)

We've paid in £12860 to the policy since it was started.

possible deductions for life ( and crit illness) cover

Big_Den_2

Big_Den wrote:

They have also calculated the amounts using SVR over the period since 1997, however, we have since moved house, increased the mortgage and already changed to part & part (i.e. did not take out any more endowments) and have had a couple of discounted rate mortgages. If we provide details of these discounted rates and related periods would this change the totals in our favour (repayment calculation & therefore, compensation offer?)

We also had an issue with the fact that at the time we took this particular policy out, the advisor told us to go for a 25 year term even though we already had endowments that only had 18 years to run. The company concerned have dismissed this for two reasons: 1) time since policy was taken out exceeds complaint time limit and 2) they have sent a copy of a mortgage offer they say we had before the advisor spoke to us that details a 25 year term so we had decided on this already.

However, the advisor we dealt with was advising us on both the mortgage & the endowment and it was him who brought the mortgage offer/illustration (was only an offer in principle) with him when he also advised on the endowment. Not sure how we can prove this though plus they may still have us on the time limit issue.

Thanks for the replies so far. Any advice or opinions on the above part of my original post?

Cheers

Den

Big_Den_2

dunstonh wrote:

the offer isnt something you can haggle over. The calculation is defined and a small amount of redress usually means that endowment has worked out cheaper.

How they came up with their figures was what I am trying to understand. They have shown that I have saved ~£817 by paying interest & endowment v's repayment & life assurance - but very big of them they won't deduct this from the amount of redress. I simply don't agree with their figures - can I ask for a detailed break down?

dunstonh wrote:

Redress of £1432 probably means the endowment is on track to pay mortgage (based on current value as redress uses surrender value).

The endowment is far from on track. The last warning that it would not make forecast received in Sep 2005 said that the projected final amount based on the current expected 4.5% per annum growth would have a shortfall of £15191 on the target of £60391!!!!!!

Den

dunstonh

How they came up with their figures was what I am trying to understand. They have shown that I have saved ~£817 by paying interest & endowment v's repayment & life assurance - but very big of them they won't deduct this from the amount of redress. I simply don't agree with their figures - can I ask for a detailed break down?

Endowment mortgages were cheaper than repayment mortgages for long periods. You are lucky that they are not deducting it as they are allowed to and most do. It is unlikely they would go into any more detail in the figures as the information is mostly done by software and not by hand. Whilst the input figures are known (and should have been shown to you), the output figures would be shown but not the calculation in between. You can pay to have your own calculation done but if the input figures are correct, then it is almost certainly right.

The endowment is far from on track. The last warning that it would not make forecast received in Sep 2005 said that the projected final amount based on the current expected 4.5% per annum growth would have a shortfall of £15191 on the target of £60391!!!!!!

That doesnt tell us much about the endowment at all. Many endowments have paid out surplus payments on maturity despite shortfall letters of similar shortfalls going out in the years before. Too many endowments project from the surrender value and not the current value. This wipes thousands off the projected value. You are also looking at 4.5%. What if the fund is averaging 7%. Indeed, it could be worse, what if it is in the 6th year of zero bonus and unlikely to pay anything ever again?

There have been examples of surrender values that are above where they needed to be on the illustrations to hit target yet they are getting shortfall projections as well. I have seen this myself a number of times.

We have seen examples of this many times in the forum where the 4% projection figure is lower than the current annual bonus and sum assured (or more commonly now, when that happens, they show that value as the 4% projection figure). The figures are often highly flawed and should not be taken in isolation without knowing other facts about the endowment.

A small redress figure suggests the endowment is not far off where it should be. It doesnt mean it will hit target or have a shortfall but at this moment, its not far off where it needed to be at this point in it's life.

Do not rely on the projection letters alone as a guide to the quality of your endowment.

Big_Den_2

Thanks Dunstonh.

Would it be worth me contacting the assigned named representative on the compensation offer letter to ask a few questions e.g.

Projected v's current performance (cannot find any annual statements for this endowment but have them for my other endowments)

Also, if I've been on discounted mortgage rates is this likely to work in my favour if I ask them to recalculate the redress based on those rates instead of the SVR over the period?

Thanks

Den

dunstonh

Would it be worth me contacting the assigned named representative on the compensation offer letter to ask a few questions e.g.

Projected v's current performance (cannot find any annual statements for this endowment but have them for my other endowments)

Unlikely the insurer would hep you there. This sort of thing comes under the realms of financial advice and most insurance companies do not stick financial advisers in claims departments. I wouldnt trust an insurance company rep on their own product either. They would have been fed the company line and believe everything is fine. The only way to get a proper assesment is to do it yourself (if you know where to get the information and what questions to ask) or get an IFA to do it. If you post some information on the company here we can give you some "opinion".

Also, if I've been on discounted mortgage rates is this likely to work in my favour if I ask them to recalculate the redress based on those rates instead of the SVR over the period?

Lower interest rates tend to favour repayment mortgages over endowment. However, I dont think this would make any difference in this case as they have said that you have currently paid less but they are not deducting the figure from you. Even if you had discount mortgags for the whole term, would it be enough to wipe out that £817 difference?

The other thing to note is that the stockmarket has gone up a lot in the last 2 weeks. Any recalculation done would take that into account. You could end up being offered lower redress. i.e. The £817 difference drops to £150 but the surrender value has increased by 3% (markets are up around 3% this week alone at point of posting) meaning the redress is reduced by £299.

The problem is that if you push for total accuracy, it can work against you.