L&G offer compensation - but I have to surrender policy

skintbrummie

We were mis-sold an endowment in 1989. Complained ourselves directly. L&G have offered £21,000 compensation, but only if we give them back the endowment. This should have been worth at least £47,000 by 2014. They reckon it's worth £20,000, but if we choose to keep it running they will pay us £1,000. Is this normal? If they're offering compensation shouldn't it be unconditional?

Difficult to find some impartial advice out there.

Help!

EdInvestor

They can't insist on you surrendering the endowment, you can't be forced to give up your life cover.

toonfish

I think they can insist on surrender - they will offer you term assurance without medical underwriting. I presume that they think as you feel the endowment is so bad, you wouldn't want to keep it anyway.

EdInvestor

Try asking the Ombudsman

https://www.financial-ombudsman.org.uk

dunstonh

They can insist if the nature of the complaint means the policy should never have been sold in the first place (rather than a attitude to risk complaint).

However, if you read the Ops post again you will see that they are not forcing surrender. They are offering £1000 if the policy is kept.

If they're offering compensation shouldn't it be unconditional?

Its not conditional. They have worked out that at this point you are £1000 worse off then you would have been had you been on repayment basis (worth checking your surrender penalty as if it is more than £1000, you are quids in). They are asking you if you want to take the £1000 or whether you want to surrender the policy in which case you get £21000 (surrender value of £20k plus redress of 1k).

skintbrummie

Thanks for the advice but I'm no clearer.

We have paid into this endowment for almost 18 years - only 7 years to go - but they're offering less than half of the amount it was meant to pay off.

The compensation is because their agent told us that we would have enough to retire when the endowment matured - he said we'd get the amount of the mortgage and probably the same again in a nice lump sum. Mind you, the pension he sold my husband was meant to have allowed him to retire at 50 - and that's another disastrous story...!

It was our first house, he convinced us that endowment was the way to go, not the repayment mortgage we'd wanted. The L&G reckon we were young enough to have paid extra into the endowment and so they have offset our age against the compensation calculation.

Think I'll take some of the earlier advice and approach the ombudsman...

midfax

L & G should supply to you, calculations called 'mortgage Fundamentals' these will give you a comparison of endowment v repayment and should take into account all the details of your mortgage, from the day it was sold to you as an endowment mortgage, to the time you ceased to use it to support your loan (if this is the case). They will then say that if you had taken out a repayment mortgage of £x at the start you should have paid off £y pounds by now. Then they will take the surrender value of the endowment and deduct that from the interest only loan that you took out and pay you the difference, ie the amount of money needed to put you in the position that you should be today. It may be that in your case you are only £1000 worst off because of the mis sale (if you surrender the policy.
If you decide to dispose of the endowment policy you should look at selling it rather than surrendering it back to the life company - you may get more than the £20,000 - that is if it is a 'with profits plan'

EdInvestor

Skintbrummie

The redress amount is not aimed at meeting the endowment shortfall.It is meant to put you in the same position you would have been in had you taken out a repayment mortgage. The difference is 1k.

What you need to do almost certainly is as follows:

1.Surrender or sell the endowment (sale quote: https://www.apmm.org )

2.Use the surrender value and the redress money to reduce the amount owed on the mortgage

3.Either convert the reduced amount owed to a repayment mortgage OR increase the monthly payment on the existing loan by the endowment premiums, thus overpaying the loan.

You will still probably still fall short a bit, but by nothing like as much as currently.A small increase in mortgage payment or extension of mortgagre term should solve the problem.

Make sure you replace the life cover if you need it before you get rid of the endowment.

Mr_helpful

1) I cannot see anywhere that you say whether its a "with profits" or unit linked endowment. If its unit linked you cant sell it as the unit value is its true value on that day.
2) If its with profits you could be chucking away a terminal bonus that can increase the value of the policy considerably.
3) You will be throwing away £47000 of life assurance which almost certainly would now be more expensive to replace. Think if either of you die after getting rid of endowment before mortgage term is up you have lost 47K on Edinvestors advice.
4) typically an endowment grows most in the latter years so you would throw away the best bit of an endowment.
5) Repayment mortgages pay most capital in the latter years so assuming L&G calculations are correct you still have over half your mortgage to pay had you had a repayment mortgage. This is presumably why they are only compensating you £1000. Cash the endowment and you still have over half the mortgage to pay in just 7 yrs.
6) I believe if you ask the FSA they would say that it is not usually good to cash in an endowment with so few yrs to run. You could phone the FSA and get their view on your situation but they are likely not to give advice though you should be able to get facts which will help you make a good decision

JoeK_3

Nice one Mr helpful.

The description made from skintbrummie is not sufficient to identify if L & G have done their compensation calculation within the guidelines set by the FSA and all the documentation should be looked at by a competent IFA.

If the calculation is correct then you have redress from the Financial Ombudsman.

JoeK

EdInvestor

Of course skintbrummie is welcome to post more info about the endowment so that we can do the calculations to confirm the best way forward.

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity forecasts
Interest rate payable on mortgage.