Endowment update: payouts still falling

dunstonh

You are still talking about the effects on your financial world dunstonh and not mine or others like me.

So, in your world, inflation is higher today than it was in the early 90s? Interest rates higher than in the 90s? Unemployment higher than that in the 90s?

Stop blaming endowments for your financial predicament. If you are suffering financially, then there is more to it than an endowment policy.

Lots of endowments didn't recover did they - nor have the With Profits - and those that have shown some sign of recovery are not necessarily passing that on to the consumer.

Correct. Some wont recover. Some will go onto recover. Its too early for some of thing to increase bonuses as they have to recover their losses first. Of course, we could swing back to the boom/bust economy of the 80s/90s, which you believe to be better, and see all the endowments come right.

You haven't given me a direct response to any of my points either - many of which looked pretty logical to me

I see no logic in your comments which suggest mortgage rates of up to double what they are now, unemployment nearly 3 times more than it is currently and inflation eating into savings/investments at a far higher rate is better than the current position (although GB is losing grip of inflation currently)

EdInvestor

It's a bit simplistic to blame it all on the change to the low inflation/ low interest rate economy. If that were the only problem, all investments would be affected.They are not.

There are other things implicated in the widespread failure of endowments and With-profits investments in general .

Major insurance company mismanagement and incompetence has to be pretty high up the list. Dreadful Government regulation right through the 1990s, culminating in the Equitable Life fiasco, is another major underlying cause.

The damage has been compounded by the breadth of the misselling, with far too many people involved who had absolutely no idea of the risks they were running - indeed no idea even that what they were doing was investing their money, as opposed to paying off a home loan.

It all adds up to a pretty toxic mix of arrogance, negligence, naivete and greed, so it's no wonder the fallout has been quite prolonged and bitter.

mayb_2

Thank you very much for that post EdInvestor which I would say was a very cohesive breakdown of the facts of the matter. If anyone cares to read the FSA's own breakdown of the causes and results of the failures of these investments you will find that they agree with the above - but in a much more long winded way. No mention of me being responsible for it myself at all dunstonh and inflation doesn't get a mention either.

originally posted by dunstonh

"I see no logic in your comments which suggest mortgage rates of up to double what they are now, unemployment nearly 3 times more than it is currently and inflation eating into savings/investments at a far higher rate is better than the current position (although GB is losing grip of inflation currently)"

dunstonh read my posts again please and perhaps stick to what I have actually said rather than making sweeping statements of what you would like me to have said. These look like your comments not mine.

I do believe that inflation figures do not reflect the true state of inflation as they leave out some very important factors when calculating it. Therefore the picture is not as black and white as you would like to paint it. Ask pensioners and nurses and many others if they feel they are getting better off and you may get an answer different from the one affecting your average client. All of whom I presume can afford to invest.

What point is a low interest rate on mortgages if you cannot afford the inflated prices to begin with. Those inflated prices have a direct knock on effect on rents.

When inflation is rising so are wages and this is not the case here and now - inflation is being represented as lower than in reality to keep down wage claims and there is a discrepancy between one and the other that is eating into peoples available spending/saving money in real terms. Many families are now paying again for dental care, health care, university education - and in some cases basic education and as this is no longer fully provided for by taxation - to name just a few things.

This is not a political debate and I wont go on on that tack but this is a case of smoke and mirrors when you tell me I am better off.

originally posted by dunstonh

"Stop blaming endowments for your financial predicament. If you are suffering financially, then there is more to it than an endowment policy."

I am not even going to go there dunstonh - I don't recall mentioning a financial predicament whatever that refers to. I have my finances in very good order - no thanks to endowments or with profits savings and pensions or university educations- but thank you for your concern.

Now my retirement - that is another ball game altogther - but I am working on it.

Gorgeous_George

EdInvestor wrote: »

- indeed no idea even that what they were doing was investing their money, as opposed to paying off a home loan.

I know a lot of people have claimed to be 'a bit thick' in order to claim for so-called endowment mis-selling. I don't believe they are as thick as they claim. I think most endowment policyholders were fully aware that they were investing their money and were not paying off a home loan.

They were not as thick as they would like the ombudsman to think they are.



GG

jamesd

mayb, yes, the ones with money only in fixed interest to pay guarantees are not going to find it easy to increase payments.

Your son should expect low annual bonuses forever. Those are typically guaranteed and guarantees are a bad thing when you have to cover the guarantee with fixed interest investments. That wipes out a lot of the potential equity investing needed to get the bonuses up. Net result: the companies are switching to minimal guaranteed annual bonuses and larger terminal bonuses.

That makes it tough for a homeowner to predict whether they will meet their target because so much of the final value is unpredictable. And since the terminal bonus isn't included in the projection, it also makes the projections more likely to undershoot.

A pension or ISA mortgage is a much more transparent choice today, since you can more easily see whether you're on track or not and can act to prevent failure, if necessary.

I agree that a period of higher inflation would be helpful for mortgage payers. Those with very high ongoing mortgage commitments might like the decrease in outstanding mortgage balance to one third of the real value that those with a mortgage in the late 70s and early 80s saw. Unfortunately that was only for the ones who survived the other events of the time while still being able to pay their mortgage. And that high inflation would be a disaster for those with fixed interest income sources, like pensioners with limited inflation guarantees.

This is all really pretty much off topic for what dunstonh tends to discuss, which is more specific details rather than macroeconomics. I'm a bit surprised that dunstonh hasn't walked away through lack of interest already.

mayb_2

If dunstonh does not have the heart for economic debate one has to wonder why he started the thing in the first place?

jamesd - not that it has anything to do with this topic - what I would like to see is a real recognition of the cost of living in order that either wages keep pace or more effort is put in to keeping the actual rate down so wages don't go down in real terms.

We all know that the last Bank of England hoist was because of the increase in consumer spending on the high street (hardly suprising with Christmas and the sales in the equation). There was a real fear that this would result in an embarassing level of wage claims - lo and behold the government announces that the level of increases in wages for nurses etc would be below the rate of inflation. This of course conveniently does not reflect the fact that mortgage interest rates rose as well - adding to the real cost of living.

The only good thing about it was that my Cash ISA went up too.

A lot of the increases/ decreases in the value of the house arguments are purely notional unless you are trying to buy your first one or buying your last one. Like many others I am sure, I need the value of my house to increase so that one day I can get my hands on some money. (the only way I can get some hands on some money) However, I don't want the house prices to increase at all because I want my sons to be able to afford to buy one without bankrupting themselves. There is no answer that suits everyone - but I think we now do agree that low inflation/low interest was not the cause of failed endowments.

I will share a bit of financial advice I was given by a successful and highly paid (though not by me) IFA. Buy a bit of land - build the biggest house you can afford - get the largest interest only mortgage you can and live in the house until you retire. Sell up and you make your money twice. Once because you have a house worth more than you paid for it as soon as the work is finished and twice - it will have risen in value again by the time you sell.

Just one little problem here - most of us can't afford the first bit - although there are ways and I am certainly looking at them!

ps It was my sons final payout on his WP policy that paid a total of £140 in profit (ie over and above what he had paid in) - that included all bonuses over 10 years and I don't recall their being any mention of the terminal bonus at all.

Gorgeous_George

mayb wrote: »

ps It was my sons final payout on his WP policy that paid a total of £140 in profit (ie over and above what he had paid in) - that included all bonuses over 10 years and I don't recall their being any mention of the terminal bonus at all.

My niece had a similar policy that paid back nothing extra. The salesman (IFA of the day) will have made something. The fund managers will have made something. The Government will have made something. Shame about my niece.



GG

mayb_2

I agree GG - it is not just the lack of payout, though that is bad enough, it is the lack of warning of the lack of payout. All plans destroyed - 10 years is a long time to wait for nothing.

EdInvestor

Gorgeous_George wrote: »

I think most endowment policyholders were fully aware that they were investing their money and were not paying off a home loan.They were not as thick as they would like the ombudsman to think they are.

IMHO even people who were aware they were investing their money and taking a risk have been exposed to much more than they were ever told.

Take for instance those who took out endowments with Royal and Sun Alliance in the 1990s. They invested in a normal With profits fund, invested around 75% in equities with the rest in safer stuff, but carrying guarantees to limit their risk.

Up until around 2000 their endowment will have been doing fine.

Now they discover it has been moved to Phoenix, is worth half its previous value, their money is invested wholly in bonds, their shortfall will be massive and the endowment can never recover.

These people IMHO have a right to be very angry and disturbed about what has happened here. This is not just normal market risk, is it?Something else has happened. What exactly? See my post above for the answer.Was anyone ever told about these additional risks?

Nobody, but nobody, was.The full extent of the risk exposure inherent in With-profits funds has not been revealed to this day. :mad:

Mr_helpful

You say no one knew the risk and that they were taking an investment. Did no one read a Key facts document. The first page told them it was an investment and they could get back more or less.
You seem to condone this selective memory and thickness (lying) just to claim compensation