Endowment Mis-selling - Don't give up!

TrickyTrotter_2

My experience shows that persistance pays, don't be fobbed off.

In 1986, we were sold an endowment policy with UK's largest mutual by (then) UK's largest BS, now a plc. The Branch Manager (you had to get down on your knees for a mortage then), told us about how his brother had just cashed in big time with one, never suggested anything else, despite the fact it was my first mortgage.

In June 03 finally decided to complain and followed the Which Endowment Action guidance. In Nov 03, the aforementioned bank rejected our complaint, despite the fact they had destroyed all our records - we moved the mortage in 1994. They said the manager must have followed the correct procedures, and I had no proof he didn't.

I wrote to the FSA in April 04 and again in June after reading some of the advice on here about demonstarting our approach to RISK rather than HOW much money we stood to lose. FSA just kept saying they were to busy to allocate our claim to a case worker

Out of the blue last Friday got a letter from FSA saying that the bank has agreed with FSA that our claim was valid and will write with an offer within a fortnight.

After reading other posts on here I expect they will ask me how I want it calculating; at actual rates or based on their standard rate. I haven't got a clue about which will be most beneficial - despite the good advice on here.

But keep going despite any apparent set back.

Backbiter

Glad your persistence stands to be rewarded.
Our story is different. We were sold a £35000endowment in Oct 87. Having already provisonally agreed a repayment with our bank, we were persuaded to take out an endowment by the illustration showing a projected surplus of - no word of a lie - £55 000 after paying off the mortgage. We were in our mid 20s and financially naive. We'd never invested a penny in any policy ever, but the advice was persuasive, the saleswoman persistent, and we were taken in.
About 3 years ago we were informed by Friends Prov (who had taken over our policy 10 years earlier) that not only would we not be receiving our promised surplus of £55000, but faced shortfall of £12000 on maturity.
We were aghast at this paper loss of £67000, and switched the whole lot to repayment, giving ourselves just 12 years to pay it off so we'd be clear of debt by our 50s (when we'd be crippled by college fees etc). This meant our repayments are far higher than they would be if we'd gone for a repayment in 1987.
We complained oto FP f misselling. They said we were missold but had suffered no loss (!!) so were due no compensation.
We went to the Ombudsman, who has just agreed with FP's judgement.
By my reckoning we will be hundreds worse off EVERY month till 2012, and are already thousands down since we switched to repayment 3 years ago.
Of course we still have the payout from the policy to look forward to. A tidy sum, but no more (probably less) than if we'd stuck £50/month (the premium) into a BS for the same period.
We feel totally ripped off!!

To make matters worse, when FP demutualised we didn't get any shares, because our policy hadn't been taken out with them originally, and because the company they'd taken over 'was not a mutual' (FP's explanation). We have it in writing in our original policy that it WAS a mutual! The company was called National Mutual of Australasia!! So why haven't we been compensated with free shares for its demutualisation?!
Any advice anyone?

dunstonh

I think this is highlighted much of the problem with endowments.

Firstly the projection is just that. It isnt a forecast. You were never going to get that amount. It was just an example of what you could get back if that rate of return had been achieved.

The shortfall projection is again very similar. It shows how much you may get back if it grows at one of three rates of return. Most insurance companies do not include any terminal bonus accrued to date and many use the lowest value (ie surrender value) to project from. This is because some insurance companies dont have a current value to work from because their plan has a guaranteed minimum sum assured plus bonuses and the only daily value is the surrender value.

So you were not facing a loss of £67000 at any time. The target was £35000 and using a projected growth rate until maturity you have potential shortfall of £12,000. However, that doesnt mean you are going to have a shortfall of that amount.

It is common sense to budget for the worst case scenario but again its not a forecast but a projection.

I have seen many endowments in the later years show shortfalls on the letters but the current values are higher than the sum assured which makes a farce of the whole system.

Yours could be one with a guaranteed sum assured and uses a lower surrender value and the end result could pay out on target. Equally yours could be one of the plans that has no potential for future bonuses and 6% could be unachievable leaving you with a bigger shortfall.

The likely reason you didnt get a payout is that back in the 80s and some of the 90s, endowment mortgages provided a lower monthly overall cost than a repayment mortgage. In addtion, you would have gained full MIRAS whilst it existed when you wouldnt have done on a repayment mortgage (decreasing balance falling below the max amount allowed).

As for placing money in the building society, you are probably forgetting the cost of life cover which should be deducted from the premium and the remainder goes towards the savings element. The charges are taken off in the early days so an endowment should have a curved rate of return over the life of the policy rather than a level one. This is another reason why projections in the first 10 years of a 25 year endowment are pretty pointless.

I'm not saying endowments are a good thing or that you didnt experience bad advice. I am just clarifying the issues which can distort the information you are provided and give reasons to them.

TrickyTrotter_2

Backbiter
Thanks, but given my circumstances are not that different to your's, I'm not expecting much.

DD

20 years on and a lot more financially literate, I appreciate these were only projections, but like Backbiter that wasn't how the local manager of my BS sold it to us. Has anyone ever tried to sue for breach of contract? Suppose it depends on who the contract was with.

I think I understand your points about the warning letters and projections. It seems we have swung from one extreme to another. My £40k endowment is now projected to hit either £28.1k (4%), £31.4k (5.75%) or £35.1k (7.5%). It is guaranteed to pay £27.4k (sum assured plus existing bonus's).

Are you saying that this doesn't include any Final/Terminal Bonus? If so this seems as misleading and confusing as the original £80k projection back in the eighties.

I appreciate (now) the final bonus is not guaranteed, but I undertsand St Life who I am with have historically paid a large final bonus, despite their declining performance in recent years.

dunstonh

Are you saying that this doesn't include any Final/Terminal Bonus? If so this seems as misleading and confusing as the original £80k projection back in the eighties.

The vast majority of with profits endowments do not include any terminal bonus you have currently accrued. So say your "valuation" is currently £10k annual bonus and £5k terminal bonus, they will project forward only from the £10k. Totally ignoring the £5k.

Some (usually those with guaranteed sum assureds) will use the surrender value as the base value and project from that because they do not have the ability to give a true current value and their system can only give a surrender value. So, like above, they could be using the lowest surrender value of £7k and still ignore the terminal bonus of £5 giving you a much bigger shortfall on the projection.

This has been noticeable on plans in their later years. I recently had a client with an amber letter showing a £5k shortfall whereas the recent bonus statement showing an £8k surplus. No surprise that the terminal bonus was almost £13k.

The whole endowment projection and misselling saga has been handled badly. If the insurance companies and the FSA had agreed that on mis sale cases, the insurance company will guarantee to pay out the sum assured on maturity then none of this would have been an issue. The compensation figures would have been a lot lower than the amounts being paid out currently and it would have been fairer as there would be no requirement to switch to repayment.

Anyone reading this should note that this applies to with profits and not unit linked endowments.

Backbiter

I think this is highlighted much of the problem with endowments.

Firstly the projection is just that.  It isnt a forecast.  You were never going to get that amount.    It was just an example of what you could get back if that rate of return had been achieved.  

The shortfall projection is again very similar.  It shows how much you may get back if it grows at one of three rates of return.  Most insurance companies do not include any terminal bonus accrued to date and many use the lowest value (ie surrender value) to project from.   This is because some insurance companies dont have a current value to work from because their plan has a guaranteed minimum sum assured plus bonuses and the only daily value is the surrender value.

So you were not facing a loss of £67000 at any time.  The target was £35000 and using a projected growth rate until maturity you have potential shortfall of £12,000.  However, that doesnt mean you are going to have a shortfall of that amount.  

It is common sense to budget for the worst case scenario but again its not a forecast but a projection.

I have seen many endowments in the later years show shortfalls on the letters but the current values are higher than the sum assured which makes a farce of the whole system.  

Yours could be one with a guaranteed sum assured and uses a lower surrender value and the end result could pay out on target.  Equally yours could be one of the plans that has no potential for future bonuses and 6% could be unachievable leaving you with a bigger shortfall.

The likely reason you didnt get a payout is that back in the 80s and some of the 90s, endowment mortgages provided a lower monthly overall cost than a repayment mortgage.  In addtion, you would have gained full MIRAS whilst it existed when you wouldnt have done on a repayment mortgage (decreasing balance falling below the max amount allowed).

As for placing money in the building society, you are probably forgetting the cost of life cover which should be deducted from the premium and the remainder goes towards the savings element.   The charges are taken off in the early days so an endowment should have a curved rate of return over the life of the policy rather than a level one.  This is another reason why projections in the first 10 years of a 25 year endowment are pretty pointless.

I'm not saying endowments are a good thing or that you didnt experience bad advice.  I am just clarifying the issues which can distort the information you are provided and give reasons to them.

Thanks for your detailed reply - much appreciated, DD. You make some telling points i hadn't considered like the MIRAS I'd received etc, the cost of life cover (of which I was aware- but it would not have been expensive to arrange life cover on the repayment we'd have taken out if we hadn't been persuaded to go for an endowment).
Of course the £90000 was a projection - but that was the saleswoman's selling point, and it was that that swayed us. We were NOT made aware of the risk of it not paying off, as we were only told of what it would be worth if past performance was repeated. We were, as i said, young, naive and open to persuasion (by £££££ signs in front of us). On these grounds we were, like many others, the victims of misselling.
It riles me that, had we not switched to a repayment 3 years ago but complained after a further 3 years of negligible growth for these policies, we would now be worse off as a result of the advice we received. We would then be due a payout.
Instead, we have paid out thousands extra (to clear the loan by 2012) to make up for the projected shortfall, and will continue to do so until 2012. My rough guess is that Friends Prov would have been liable to pay us a few thousand if we hadn't been so prudent three years ago. We have lost out, we were missold, we are out of pocket, but FP doesn't have to compensate us.

Of course, we could yet be overjoyed by the size of the payment due in 2012 (and will have to duck to avoid the flying pigs).

Poppy9

At least you lot can complain to someone and have a chance of compensation. In my early 20's I took out an endowment in 1985. We had a mortgage for £17k and I have the original letter showing that the endowment mortgage repayments were more expensive than repayment - but we would have a £17k surplus with the endowment at the end of the mortgage. Therefore we were told paying just £3.50 per month more would generate us a nice little nest egg if we went the endowment route. Well now Standard life tell us we will have a £3k shortfall!

I tried the ombudsmen but because it's pre 1986 we can't complain. Wrote to my MP who passed it on to some minister responsible for the fiasco - received a letter saying hard luck basically.

Can't have the company that sold it to me for bad advice as it was an Estate Agents (Parkhurst, Swansea) who no longer exist. I can't find out whether the estate agents occupying the premises now (Peter Allan - part of principality bs I think) took over the business or just the premises.

Also have another endowment took out in 1995. I was a bit nervous as heard some bad rumours but was told it was the right thing for us as we had 1 endowment already and that was guaranteed to pay off mortgage!

Now we have a potential £6k shortfall on a £35k mortgage. To address this I have taken out an ISA.

I feel very aggrieved at the cut off point for the first mortgage especially when standard life send me warning letters with how to complain on!

Backbiter

I always thought the cut off date was 1988 - but ignored it and complained anyway, without success.
I hope you enjoy more success with your ISA than me. I was advised by my IFA to invest £7k in a Multi Isa in 2000. It's now worth barely £2k.
These advisers are great aren't they?

PaulGeary

I took out a low cost endowment with Standard Life in 1991 and face possibly a 7K shortfall according to the last statement, do I take it that I may still be OK if St Life give you a Final Bonus?(matures 2011)

Also does it look like we will get a windfall? if so when could it be, and any ideas of amounts?
TIA

dunstonh

I took out a low cost endowment with Standard Life in 1991 and face possibly a 7K shortfall according to the last statement, do I take it that I may still be OK if St Life give you a Final Bonus?(matures 2011)

Also does it look like we will get a windfall? if so when could it be, and any ideas of amounts?
TIA

Standard Life do actually have some of these plans which dont have a true current value so yours could potentially be one of these. Plus as mentioned higher up, the final bonus that is currently on the plan, isnt included.

The demutualisation payment is still not set and based on current value of standard life could average £1400 per plan. The payment would either be paid out by cheque, in the form of shares or paid into the plans (the latter would be most beneficial to standard life).

You can go back to the IFA that sold you the plan who can get you an update on the plan and give you more information on whether the plan uses its current value or surrender value or includes any final bonus. If you dont have access to that IFA, then i would be happy to get the plan transferred over to my standard life agency and provide that information to you. (any renewal commissions paid would then come to my company instead of the original company who is still getting them. These would be approx be between 2p and £3 per month). Email me if you want to do that and i can provide you with the formal documents to confirm status and get the information.

payless

Remember that some Standard Life endowments had a loose "pledge" to possibly make up some of the potential shortfall, subject to a range of conditions & circumstances being met