Endowment Compensation

Johnocyprus

I have just received an offer from Barclays Bank for mis selling me a 25 year low cost with profits Standard Life Policy endowment policy which started in June 1986 at £53 per month.
The offer is a paltry £1,416 and I quote "We have deducted the cost of life insurance.....from this compensatory offer ...bacause we would consider that there would be a need for life cover." Well, there wasn't any need for life cover because I have generous death in service benefits with my job and I consequently didn't take out life cover.
If I bring this to Barclay's attention will this lead them to increase their offer or decrease it?
Any advice would be gratefully received.

vinno65

Hi John,
yes is the answer, not all mortgage lenders require life cover and the fact that you were cover by death in service benefits is important. You could write to Barclays again or go to the FOS it's up to you.
regards Vinno

dunstonh

In 1986 I would have thought life cover was a requirement of the mortgage. Most were until the mid to late 1990s. Its easy to forget that the requirements back then. Of course, they may forget that too. Also, death in service hasnt been considered a reliable alternative to mortgage protection when you have a family. If you are single you could possibly argue it but you are less likely to be successful if you have a spouse and children. It is highly unlikely that Barclays would back down on this if you have financial dependents.

The reason the redress is "paltry" is that the endowment isnt doing as badly as perhaps you think. Indeed, as the redress is based on the surrender value of the policy rather than the current position, its quite possible that it is in a positive position rather than a negative. Indeed, a 1986 Standard Life endowment would suffer the projection accurracy problem due to the limititations of their software on policies of that era. This has resulted in older endowments showing shortfalls but going onto to pay surpluses just 12 months later (on maturing plans). Not very helpful when trying to get a real idea of the position of the policy.

Another thing to note is that with every calculation, you could end up getting more or less. Whilst movement on with profits plans would not be as great as unit linked plans, it is still something you need to consider. Especially with the August bonus announcments due. You could find it takes 3-4 months to argue your case and if you win, any gain could be wiped out by an increase in the bonuses and if you lose, you could lose even more. Plus if you have gone past another policy anniversary, there would be a reduction in the surrender value reducing the redress further.

dreamylittledream

Actually for most lenders life cover was never a requirement for a repayment mortgage - only 'strongly recommended'.

However, Barclays were an exception to this rule an did require life cover to be in place as a condition of lending until 1996. So if your mortgage was originally with Barclays you will not be able to argue this point. If it was with Woolwich (who Barclays now own) however you would.

Worth noting however, even if the cost of life cover is removed from the comparison the compensation may not increase if you have made a larger saving on the costs of your endowment mortgage then the actual cost of the life cover premiums.

Generally speaking unless the cost of life cover was very high (and of course as dunstoh points out you were single at the time with no dependants and as such had no need for lifecover) its not really worth arguing this one - in a rising market an gain is likely to be wiped out by the rise in the surrender value of your policy.

Johnocyprus

Thank you for those replies however am still not sure whether to inform Barclays that I didn't need Life assurance which their offer assumes (I am trying to get them to increase their offer ), please also note that the endowment was originally sold to me by the Woolwich which Barclays subsequently took over , and it may be relevent that I surrended the policy in 2005.
Any advice gratefully received.

vinno65

Hi John,
They won't increase their offer if it is based on the calculations as laid down by the FSA, it will be increased however if they take the cost of life cover out of the equation, you should ask them to do so.

regards Vinno

dunstonh

With Standard Life due to update their bonuses in just over a weeks time, you could find that a recalculation works against you. If the bonus rate/terminal bonus improves, MVR reduces and you have entered a new policy year and have a higher surrender value, you could lose more than you gain.

dreamylittledream

Johnocyprus wrote:

Thank you for those replies however am still not sure whether to inform Barclays that I didn't need Life assurance which their offer assumes (I am trying to get them to increase their offer ), please also note that the endowment was originally sold to me by the Woolwich which Barclays subsequently took over , and it may be relevent that I surrended the policy in 2005.
Any advice gratefully received.

Did Barclays send you a copy of their Mortgage Fundementals calculation?
(it will be on a seperate sheet helpfully labled 'mortgage fundementals'.

Have a look at the first column which shows the cost of your endowment mortgage compared to a repayment mortgage - it probably will be a positive figure.

Now deduct that from the cost of the life assurance (which is near the bottom in the summary notes for the repayment side of the comparison).

If you are still left with a positive figure you will not gain any additional compensation for requesting the removal of the cost of life cover. If it is negative this is the amount your compensation should go up by - assuming there is no change to the value of your policy,

However dunstoh's point about rising surrender values remains very valid - disputing an offer of compensation is always fairly risky - even if you win the point you are arguing there is no guarantee the offer will increase...