Endowment bonus payments not in line with market growth

ktel1

Dear all,
I was wondering if you would possibly answer a query for me regarding my endowment?

It was taken out pre-regulation in April 1987 with, initially Royal Life, now Phoenix to cover a sum of £32.5k, basic sum assured of £9945.00.

It is due to mature in a week's time and I am expected to return the policy document with the maturity claim paperwork. Estimated maturity value £24.7k, so £7.8 k short.

I have tried claiming against mis-selling and failed with both Phoenix and FOS due to its age. Having read many posts here and posted my own request for info, I realise that this is pretty useless now but am clinging on that there may be a last ditch hope of something.

One thing that has been bothering me is that up until about 2000, bonuses paid did appear to track growth rates (I have excel graphs I have constructed showing this using data supplied by Phoenix on my request). In 2001, growth rates plunged and as a result bonuses dropped to a rate of 0.25%. However, ever since then and right up until now, this bonus rate has remained at a flat 0.25% despite the fact that between 2002 and 2006, growth rates picked up again, exceeding 8% in 2004. I have multiple entries within my endowment paperwork stating that bonuses paid will be a result of tracking market growth, yet bonuses I have received since 2001 have been the flat same 0.25%.

Is this correct and are Phoenix potentially in breach of contract by not paying out in respect of what the policy said it would do? Whereas I can understand that they would need to keep bonus pay outs conservative in order to maintain funds, I would have at least thought bonuses during the 4 years of positive growth would lead to better pay outs?

Do I in any way have a claim against that? I understand that performance of an endowment is not basis for a claim but what about claiming under breach of contract as the company have not paid out in accordance with the policy terms?

I, as probably many in my situation, still feel very bitter about this whole saga, so am very reluctant to hand in my policy document and call it a day without one last fight for justice!!

I appreciate it is far fetched but is it worth a shot or should I just accept my fate and claim my maturity value as given?

Thanks in advance for any advice you can give.

kingstreet

The only way your growth charts would match the endowment return is if they were both invested in exactly the same things.

The chances of that are very slim. In addition, every time an annual bonus is declared, an equivalent sum has to be invested in gilts to provide the guarantee at maturity. Only terminal bonus truly reflects the investment return as it is made up entirely of unallocated resources.

Finally and most unsatisfactorily, organisations like Phoenix have no great interest in how your plan performs. It still gets its expense deductions from plan and investment charges. Closed fund managers have no great incentive to perform better than open ones.

COLOURBOUNCE

I know they like to hide behind the term ' smoothing '. It means nothing, as it clearly didn't work. Most investments go up and down with the market, and over the last 25 years, all would be substantially up if this was applied. Smoothing, stopped all the up and down, and somehow the result is what is left, which is pathetic as you have seen. I don't really think anyone can give you an answer to your question as there isn't a valid reason for such poor returns now. Service charges must have been colosal to start with, and they kept their noses well and truly in the trough.

ktel1

Hi Colourbounce and Kingstreet.

Many thanks for the responses. I fully understand that as closed fund "caretakers" there is no incentive for Phoenix to do anything in my best interest but that is where my unhappiness lies.

There is great emphasis on claiming against mis-selling because of the advice given by the financial advisor but I see no action taken upon the providers of these plans to work in the best interests of the policyholders. In my case I signed up to a 25 year plan that would seek to achieve a value at the end of at least £32.5k and therefore these providers should be working hard to achieve this. They should be committed to ensuring maximum payouts. I signed up to this plan through Royal Life, they were the ones making all the promises and commitments. I never asked, nor did I ever agree, for this to be passed to a closed fund manager called Phoenix (or Resolution before that). Certainly in being passed to them, I would expect them to honur exaclty the same terms as that promised by RL and I do not believe this to be the case.

I was not given any option to move the full pro-rata value at that time if I did not agree to this change of ownership and was only offered a poultry surrender value. Therefore I committed to a product for 25 yrs but RL gave up their commitment after 15 yrs. This should be breach of contract at least!!

I cannot claim for poor performance but their should be some claim allowable for poor management of that product and the FOS should act on the public's behalf. You and many others are all aware that closed fund managers are not working in my best interests but no-one acknowledges this nor takes action?

Am I right in what I state above?

COLOURBOUNCE

Yep, all too true. Take your money and move on. No point going over it all, they have got off with it big time, and there's nothing that can be done.

dunstonh

Many of the with profits funds were forced to sell equities at a low and were not able to recover the losses in the years that followed. With the FSA putting a focus on solvency and with such high solvency requirements in place, the providers have little choice but to be heavy in low risk assets which do not generally provide the returns needed but it does stop the fund from failing.

I cannot claim for poor performance but their should be some claim allowable for poor management of that product and the FOS should act on the public's behalf.

Its not poor management. Its circumstances. The risk warnings exist for that very reason.

You and many others are all aware that closed fund managers are not working in my best interests but no-one acknowledges this nor takes action?

They are working in your best interests. Just that you dont realise that the fund failing is a worse outcome that giving you too high a return that they cannot afford.

they have got off with it big time, and there's nothing that can be done.

They didnt get away with it. There is a fraction of the insurers in existence today. Most have had to closer their doors and sell their whole life book or find a buyer and their name disappear into the history books.

COLOURBOUNCE

dunstonh wrote: »

Many of the with profits funds were forced to sell equities at a low and were not able to recover the losses in the years that followed. With the FSA putting a focus on solvency and with such high solvency requirements in place, the providers have little choice but to be heavy in low risk assets which do not generally provide the returns needed but it does stop the fund from failing.

At the time the FSA were making their typical fist of things, were these companies not paying out far higher bonuses than they should have ? Surely selling stocks at a low would have told them there is no way back any time soon ?


Its not poor management. Its circumstances. The risk warnings exist for that very reason.



They are working in your best interests. Just that you dont realise that the fund failing is a worse outcome that giving you too high a return that they cannot afford.

As above, they penny dropped way to late - I'd call that poor management.

They didnt get away with it. There is a fraction of the insurers in existence today. Most have had to closer their doors and sell their whole life book or find a buyer and their name disappear into the history books.

And this is the result of poor management of funds, or taking unsustainable service charges. The quick way out is to pass the buck and shut the doors. I do appreciate your insight dunstonh, but they just didn't seem to learn, or want to learn when things got too hard.

dunstonh

And this is the result of poor management of funds, or taking unsustainable service charges.

actually, you can find that many of the endowments are quite cheap on an ongoing basis. They were heavy up front as they were priced for a high inflation boom/bust economy (part of the reason they failed when that stopped happening for an extended period)

I do appreciate your insight dunstonh, but they just didn't seem to learn, or want to learn when things got too hard.

There are hardly any left and they get very little investment business nowadays. There is probably only one viable with profits fund nowadays. Most no longer off it.

ktel1

They didnt get away with it. There is a fraction of the insurers in existence today. Most have had to closer their doors and sell their whole life book or find a buyer and their name disappear into the history books.

I have to admit, Dunstonh that I am finding it very hard to sympathise on the side of these investment companies. I'm willing to bet that the majority of the people behind these schemes walked away in a significantly better financial position than those of us that signed up to these schemes and some 15 years later discovered that they had been seriously let down.

Please remember that it isn't just the shortfall in the target amount that people like me have been hit with (and that is to say nothing of the huge additional bonuses that were being promised against these endowments!), it is also the additional and probably huge amount of addtional interest we have paid on our mortgages as a result of not being on a repayment mortgage. I know that we have been incredibly fortunate in the past few years or so to be experiencing very low interest rates but I can remember back to the early years of my mortgage when interest was at 14.5% and only in recent years have mortgage rates come down significantly. I know Dunstonh that you will probably talk about the price difference between repayments and interest only back then but regardless, if I had been paying off a repayment rather than an interest only, how much would I have saved in unnecessary interest payments?

I know that the decision to move on is the best one (well, the only one really) but I am finding it very hard to let go of such a huge disappointment. Hope I work long enough now to be able to pay back my mortgage (which clearly has risen massively since I started the endowment!)

Mind you, at least in putting this to bed, I can now concentrate on becoming equally as disappointed and disillusioned over my pension(s)!!!!!!!!!!!!!!!!!!!!!!!!

Thanks to all for your responses, having read these forums for long enough now, I pretty much knew the outcome, there was a small amount of optimism in me that there might be a last minute entry to save my day!!

dunstonh

I have to admit, Dunstonh that I am finding it very hard to sympathise on the side of these investment companies.

I am not trying to get you to sympathise. They made mistakes but they were also victims of circumstances that could not be predicted. The point I was making is that most did not get away with it as it effectively cost them the company.

Please remember that it isn't just the shortfall in the target amount that people like me have been hit with (and that is to say nothing of the huge additional bonuses that were being promised against these endowments!), it is also the additional and probably huge amount of addtional interest we have paid on our mortgages as a result of not being on a repayment mortgage.

That is unlikely. Most endowment mortgages were cheaper than repayment mortgages. It was one of the most common reasons people took endowments.

I think the endowment issue with all its faults and complacency is often caught up in hindsight. For most of the life of endowments, they succeeded in doing what they should have done. We then suffer economic events that were not predicted. The risks which were always there but had never been an issue happened. The endowment product itself compared to modern options is like comparing an Austin Allegro with a modern car. However, modern investments still can suffer the same things.

Mind you, at least in putting this to bed, I can now concentrate on becoming equally as disappointed and disillusioned over my pension(s)!!!!!!!!!!!!!!!!!!!!!!!!

I'm loving this volatility on my pension. Whilst periods like this are a pain for single premiums or those coming up to maturity, they are great news for regular payments. Had there been periods like this in the 90s, then endowments may not have failed to hit target (the lack of volatility during that period didnt help).