Endowment policy charges - can I request a list?

SteveDitchburn

Twenty four years ago I bought a twenty-five year 76k with profits Endowment with Scottish Amicable to cover a mortgage I had taken out. At the time they were a recommended company which seemed to be doing reasonably well. The seller advised me verbally to take out a with profits policy because that way 'I would receive a lot more than my mortgage amount'.

Some years later I changed houses, added 24k to my mortgage and took out another endowment to cover this. Both Endowments are due to mature in Spring 2011.

Scottish Amicable were bought out by The Prudential in the nineties (I think) and at the time I was informed that 'thousands of pounds' would be added to each policy in the Endowment fund pool.

For the last few years I have repeatedly received warnings from The Prudential that my policies will probably not reach their required maturity amount - as they are 'with profits' policies I hate to think what final payment they would be making on ordinary policies.

What I would like to do is to ask The Prudential for a list of all charges / payments / deductios etc. taken from my Endowment accounts during the years that the policies have been in operation.

Can anyone tell me whether I have a right to this information and whether The Prudential will be able to provide it?

Many years ago I had a girl friend who sold policies (not for The Pru) who told me that for 25 year policies virtually none of the first five years payments go into your account. Apparently they are all used to pay commission to the policy agent. Obviously no one bothered to mention this to me when the policies were sold.

About three years ago I 'invested' 10k in an HSBC Bond - after around 18 months it was worth 5600!! But more recently it has risen to 12600, a return on around 8% a year after tax which is phenomenal given the current interest rates.

So why are Endowment Companies saying that the past few years have been disastrous and using these warnings as a way of explaining their poor returns when HSBC can pay 8% a year? (and it wasn't a high risk fund, just a normal HSBC managed fund).

It's all too obviously a ploy so that the Endowment boys can pay poor returns and make large charges. That's why I would like to see a list of all charges made against my account.

opinions4u

1) You can ask them. No idea what records of charges they will have retained though.

2) Scottish Amicable are one of the better performing endowment companies - thank you're lucky stars that you're with them and not some of the other rubbish!

3) The HSBC comparison is meaningless. Different investment funds and different timescales. Managed fund v With Profits fund is not on the same playing field. Are you seriously trying to claim a fund that was 44% down at one point is the same as a with profits investment?

4) With profits providers have been forced by regulators to move a chunk of policyholders' assets in to lower risk investments. This has restricted their ability to produce returns in line with equity markets, but has reduced the risk of bigger shortfalls.

5) 24 years ago average interest rates and average inflation rates were higher and as a result drove higher investment returns. The world has changed and most of these policies have been unable to deliver. Ironically, many Prudential branded policies are pretty close to being bang on promise.

6) Even if they can tell you what charges are taken out of the plan, what exactly are you going to do about it? If M&S could provide a breakdown of how they make and distribute a pair of trousers, it wouldn't change the retail price and they wouldn't be reimbursing customers for the various trousers sold over the preceding 24 years.

Many years ago I had a girl friend who sold policies (not for The Pru) who told me that for 25 year policies virtually none of the first five years payments go into your account. Apparently they are all used to pay commission to the policy agent. Obviously no one bothered to mention this to me when the policies were sold.

Typically the first couple of years covered "administrative costs" of setting up the plan. This included paying the seller a commission as well as covering other costs incurred by the insurer.

Opportunities to claim mis-selling don't exist on your first policy as it predates the Financial Services Act. While there might be a case for argument on the subsequent policy, you are almost certainly out of timescales laid down by the FSA.

EDIT: Use the resources on this site to get a better view over any action that you wish to take. When the bank charges issue eventually got to court it was the banks who won. The FSA has effectively closed the door on endowment mis-selling for all but a tiny handful of cases. Negative? Me? Realistic and direct would be more like it.

Still, if you'd prefer me to have posted "Yes. Get the information and then ask for all of the charges back, together with any investment shortfall, and also sue their rear ends off for £1m in punitive damages you're sure to win" would that have been more helpful?

SteveDitchburn

I hate to say it but you sound rather negative - you'll say you're just being honest. But maybe getting a list of charges would allow me to question some of them in the same way that customers questioned Bank charges - successfully so it seems.

dunstonh

What I would like to do is to ask The Prudential for a list of all charges / payments / deductios etc. taken from my Endowment accounts during the years that the policies have been in operation.

You can ask. They will quite happily give you a list of the explicit charges.

Many years ago I had a girl friend who sold policies (not for The Pru) who told me that for 25 year policies virtually none of the first five years payments go into your account. Apparently they are all used to pay commission to the policy agent. Obviously no one bothered to mention this to me when the policies were sold.

1 - its about 18-24 months not 5 years.
2 - you bought yours pre-regulation. So, the information given then was less than you got in later years.

So why are Endowment Companies saying that the past few years have been disastrous and using these warnings as a way of explaining their poor returns when HSBC can pay 8% a year? (and it wasn't a high risk fund, just a normal HSBC managed fund).

Not the same risk profile or product or investment area. HSBC's investments (which are usually quite poor) are only a few years in. One of those years was the one of the highest growth periods in history. However, go back further over 20 years and the seeds for failure were sowed in the 1990s and early 2000s. You had over 10 years of near solid growth. Very few negative periods. That is not good for regular contracts. The last 10 years have been pretty awful with the stockmarket lower than it was 10 years ago and it had two drops of a similar amount in quick succession. Drops of that scale tend to be once a generation rather than twice in 10 years.

It's all too obviously a ploy so that the Endowment boys can pay poor returns and make large charges.

Scot Am exceeded 8% over the last year. The charges are mainly front loaded with little left towards the end.

But maybe getting a list of charges would allow me to question some of them in the same way that customers questioned Bank charges - successfully so it seems.

It wont. You agreed the charges when you signed the contract.

Loughton_Monkey

By all means ask for the charges. Also ask for the salary of the Chief Executive. Even were you to get accurate answers to all the questions, it won't so you any good. There was a 'window' during which many people could succeed on a 'mis-selling' point, but you're probably far too late (or out of scope) for this.

I had endowment mortgages, but actually most of mine performed very well. There is, however, a very naive mis-conception about them. Here's the truth:

Endowment Mortgages were sold for a long time. Parameters changed over the years, but at any point of sale, there was a 'percieved' set of interest rates. If, say, the Mortgage rate was 7%, then (perhaps justifiably) the Endowment Policy was designed on a 'reasonable' (at the time!) assumption that the policy would deliver 8% or more.

Now when the Mortgage rate goes down to 4% (say) you feel 'quids in' and go and spend the 3% saving on something else, not realising that the Endowment returns are going to fall commensurately.

OK, I have personally always understood this, but I can see why many don't. I have an inkling that if these policies had all been sold with a strong caveat, the worst of the problem would have been eliminated. The Caveat would have said something like: "This policy is designed to pay off your mortgage in 20 years time, based upon current interest rates. It is sold on the basis of (e.g) 7½% Mortgage Interest rate. Therefore, it is vital that when MI rates fall, the 'saving' in interest is invested immediately, since the Endowment Policy bonus rate will start to fall."

Put it another way. Take two people who both took out an £80K mortgage 25 years ago. One took a straight variable re-payment, while the other took a straight variable rate Endowment Mortgage. Now write down their respective cash flow after 25 years, and calculate the equivalent IRR (rate of return on the cash flow). Despite a shortfall in the latter's endowment, and the need to cough up another £10K (or whatever) I would strongly suggest that they have both done more or less equally.

If you can use spreadsheets, write down all your premiums (and dates) and then your maturity value. Either use the IRR function, or simply calculate a nominal interest on your premiums, and then "goal seek" to find the exact interest that equates to the maturity value.

I did this on 3 of my Endoment Policies. One taken out in 1972, one in 1988, and the other in 1990. The "Interest Rate" I received was 9.68%, 9.53%, and 8.65% respectively. I don't call this bad!

SteveDitchburn

I should say that I sold my house three years ago and didn't cash in the Endowment so I am not dependant upon it repaying the mortgage. I just don't don't understand how a 'with profits' policy can end up paying less than the initial agreed sum!

opinions4u

SteveDitchburn wrote: »

I just don't don't understand how a 'with profits' policy can end up paying less than the initial agreed sum!

A typical low cost with profits endowment policy has a "sum assured" - which it pays out on death, or a "minimum sum assured" - which is the absolute minimum that will be returned on maturity.

Take a look at your policies and you will see this. One will be (very roughly) a third of the size of the other. They will pay out more than this lower amount!

turbobob

SteveDitchburn wrote: »

I just don't don't understand how a 'with profits' policy can end up paying less than the initial agreed sum!

As opinions has said, low cost with profits policies pay a guaranteed basic sum assured, and bonuses are added to this. The basic sum assured was typically set at around 1/3rd of the mortgage amount. Check your policy documents to see what the basic sum assured is.

They also had life cover which equalled the mortgage amount, so obviously this is higher than the basic sum assured.

At maturity you get the basic sum assured plus bonuses earned throughout the life of the policy, plus any terminal bonus added at the end (which is variable depending on recent investment performance). The aim was for the total of these elements to be at least the amount of the mortgage but this was not guaranteed. It was common back then for the required average growth rates to achieve the target to be 8% or more.

dunstonh

I should say that I sold my house three years ago and didn't cash in the Endowment so I am not dependant upon it repaying the mortgage. I just don't don't understand how a 'with profits' policy can end up paying less than the initial agreed sum!

Because yours is a low cost endowment and not a full cost endowment. Only full cost endowments were guaranteed to hit target.