Endowment Mis-selling - Don't give up!

Bread_Lady

Thanks for the info. I have already done so with Citibank but Halifax don't have an email link on their website so I rang them and was told I could only get the info if I write in and request it!! So much for technology!

Haven't had to resort to FOS - did use FSA to clarify my rights - very helpful. I just refuse to be bullied and the more they threaten the more I fight back - after all I have received no money from them to date so what have I got to lose! The particular company I am battling keeps setting deadlines but have recently assurred the Treasury Select Committee they are not applying any time limits!

Quester_2

I have read through many of the entries on this site and have found them very helpful. However, there are still some matters about which I would appreciate further guidance.

(1) Some of the postings suggest that projected shortfall figures can not be relied upon as they may be based on "current surrender values" rather than on the (higher) 'true' current value of a policy. However, I had always assumed that "surrender values" were supposed to be calculated so as to represent the true worth of a policy at the time that it was surrendered (perhaps minus an admin charge). Could someone explain how the "surrender value" can be significantly less than the “true” value of a policy at that time, and give me an idea of how wide this possible discrepancy can get?

(2) Some of the comments made about how “accrued” terminal bonuses may not be included when endowment companies calculate their shortfall projections, also seem to contradict what I thought I knew about final bonuses. I had thought that annual bonuses were guaranteed and that terminal bonuses were not – instead being calculated at full-term or surrender date according to how well the underlying investments had performed over the duration of the policy. If this is indeed so, then how is it possible to talk of “accrued” terminal bonuses when a policy is still mid-term and is not being surrendered? Or are we talking merely about estimates of how the terminal bonus is shaping up so far - estimates which could presumably radically alter (even to zero) if interest rates and the stock market suddenly slumped? Or are my pre-conceptions about how terminal bonuses are allocated totally wrong?

Would it be possible for one of the endowment experts who post on this site to list which of the main providers customarily do or don't include terminal bonuses in their shortfall projections? (My own interest is in the Sun Alliance and London Assurance Company, but I am sure that other readers would appreciate info on the practice of other companies).

(3) I believe I was mis-sold, but I am puzzled as to how the mis-selling /disadvantage calculation operates when a mortgage holder with an endowment policy has subsequently paid off part of the loan capital, but has retained the endowment policy. My own endowment was taken out in 1988, but in 1993 I was able to reduce the outstanding loan by £10,000 through making a lump-sum payment. I have recently received a 'shortfall' letter telling me that my endowment is likely to fail to meet the original target figure by about £9,000 when the policy terminates. However, since I have already paid back £10,000 of the initial loan, the endowment policy should now provide more than sufficient funds to meet my obligations. It therefore seems arguable that since 1993, at least, I have not been financially disadvantaged by having an endowment rather than a repayment mortgage. (And since returns from 1988 to 1993 were reasonably good, my endowment, even though mis-sold, may quite possibly have out-performed a repayment mortgage during this period). Is this the correct way of looking at the situation, or would it still be worth making a claim?

dunstonh

(1) Some of the postings suggest that projected shortfall figures can not be relied upon as they may be based on "current surrender values" rather than on the (higher) 'true' current value of a policy. However, I had always assumed that "surrender values" were supposed to be calculated so as to represent the true worth of a policy at the time that it was surrendered (perhaps minus an admin charge). Could someone explain how the "surrender value" can be significantly less than the “true” value of a policy at that time, and give me an idea of how wide this possible discrepancy can get?

Conventional with profits plans were never intended to give a current value. They had the guaranteed sum assured to which the annual bonuses and final bonuses were added. The computer systems for these plans are very old and cannot be altered easily, if at all.

So, when the projection method came in, needing to project from a current value, the best some could do was to project from the surrender value. In some cases, the projected value at 4% was lower than the guaranteed sum assured and annual bonuses to date (which isnt possible). The main provider guilt of this soon recognised that and altered their projection system to put the higher of the surrender value projected forward or the guaranteed sum assured plus annual bonuses into that 4% figure. So it still isnt accurate. Its just a little less inaccurate.

Also the projections now seem to use 4,5 & 6% most of the time. These are just examples. You could be in an endowment that is running at 1% and the 4,5 & 6% is totally useless. Or you could have one of the better endowments running at 10% which could still show a shortfall at 4,5 or 6%.

Things like increased allocation rates never get factored into projections either.

So, if you have a conventional with profits endowment, you may not get a current value. If you have a unitised with profits, you should get a unitised current value but it may not include the terminal bonus accrued to date. A unit linked will have a true current value and surrender value.

(2) Some of the comments made about how “accrued” terminal bonuses may not be included when endowment companies calculate their shortfall projections, also seem to contradict what I thought I knew about final bonuses. I had thought that annual bonuses were guaranteed and that terminal bonuses were not – instead being calculated at full-term or surrender date according to how well the underlying investments had performed over the duration of the policy. If this is indeed so, then how is it possible to talk of “accrued” terminal bonuses when a policy is still mid-term and is not being surrendered? Or are we talking merely about estimates of how the terminal bonus is shaping up so far - estimates which could presumably radically alter (even to zero) if interest rates and the stock market suddenly slumped? Or are my pre-conceptions about how terminal bonuses are allocated totally wrong?

Terminal bonuses are not guaranteed. However, a number of providers make the information on how much is accrued to date available. So, we get an indication of how much is there already.

You have to ignore stockmarket fluctuations etc. A unit linked endowment offers no guarantees on the current value and can go down but you still get the projection on it.

An example may be appropriate here. Lets assume we can get a current value.

C/V = £20,000
S/V = £15,000
Projection = £30,000
Target amount = £35,000

This endowment would appear to be running £5000 short. However, the terminal bonus accrued to date could be enough to cover that £5000. That is why you need to know how much it is.

Realistically, you cannot include the terminal bonus in projections. However, relying on the projection alone is not a good idea as you could end up surrendering a plan which has a very good chance of hitting target.

I have seen endowments with projection shortfalls a year or two before maturity but have gone on to provide surpluses on maturity. Most IFAs will say the same.

Would it be possible for one of the endowment experts who post on this site to list which of the main providers customarily do or don't include terminal bonuses in their shortfall projections? (My own interest is in the Sun Alliance and London Assurance Company, but I am sure that other readers would appreciate info on the practice of other companies).

I havent any experience of the Phoenix life group (Sun alliance life isnt owned by sun alliance anymore). The group does have a range of funds available on the life side, including unit linked, unitised with profits and conventional with profits. Which is yours?

I will let someone else answer number 3 as I have an appointment and cannot answer that now.

FOSman

Quester wrote:

(3) I believe I was mis-sold, but I am puzzled as to how the mis-selling /disadvantage calculation operates when a mortgage holder with an endowment policy has subsequently paid off part of the loan capital, but has retained the endowment policy. My own endowment was taken out in 1988, but in 1993 I was able to reduce the outstanding loan by £10,000 through making a lump-sum payment. I have recently received a 'shortfall' letter telling me that my endowment is likely to fail to meet the original target figure by about £9,000 when the policy terminates. However, since I have already paid back £10,000 of the initial loan, the endowment policy should now provide more than sufficient funds to meet my obligations. It therefore seems arguable that since 1993, at least, I have not been financially disadvantaged by having an endowment rather than a repayment mortgage. (And since returns from 1988 to 1993 were reasonably good, my endowment, even though mis-sold, may quite possibly have out-performed a repayment mortgage during this period). Is this the correct way of looking at the situation, or would it still be worth making a claim?

Hello there. What happens is they reduce the calculation by the amount that you paid off the mortgage. This has the effect of assuming that you would have paid off the same amount had you taken a repayment mortgage.

Therefore, if you paid off half of the mortgage, the amount used in the calculation would be halved, and the remainder of the calculation would be done on the outstanding amount on the mortgage.

Quester_2

Thank you (dunstonh and FOSman) for your replies to my queries.

I can see the potential problems involved both in estimating the current value of an endowment and in estimating what its final value will be. I also take the point that a 'projected' value may have little to do with the latter. In my case, however, it would seem that the projection from Phoenix for my conventional 'with profits' endowment does take account of all the possible factors. At least a recent letter from them states:

"To calculate the potential policy values at maturity we establish how your plan has performed to date then project benefits forward making allowance for the future annual and terminal bonus that could be declared in the event that we achieve those particular rates of return as set out. We use investment returns net of tax and take account of the expenses we expect to incur in the future. The projected final amounts produced thus represent the total payout that you could receive when your policy matures if we achieve those future investment returns".

However, I remain puzzled as to how the "current value" of a policy can differ significantly from the 'surrender value' (as in your example, dunstonh). If a 'surrender value' is not an honest attempt to estimate the current value of a policy (ie. with reference to the sum assured, guaranteed bonuses accrued, and underlying investment returns converted into a terminal bonus) what the hell is it?

dunstonh

However, I remain puzzled as to how the "current value" of a policy can differ significantly from the 'surrender value' (as in your example, dunstonh). If a 'surrender value' is not an honest attempt to estimate the current value of a policy (ie. with reference to the sum assured, guaranteed bonuses accrued, and underlying investment returns converted into a terminal bonus) what the hell is it?

Plans may have a penalty if you surrender them so the surrender value would be lower than the current value. Some funds, in particular with profits, can also have a market value reduction on top. These funds have annual bonuses that once added, cannot be taken away. If you stay until maturity, you get these fine. If you surrender early and the markets have gone down, then you get a penalty.

To calculate the potential policy values at maturity we establish how your plan has performed to date then project benefits forward making allowance for the future annual and terminal bonus

No mention of current terminal bonus, just future. To be honest, i wouldnt expect there to be any current terminal bonus with this particular provider. It was R&SA weakness that led to the sale of the life and pensions business. However, I would never assume anything in a case like this and its not difficult to get confirmation.

novice2000

I find these posts very disturbing, no wonder the uk is starting to look like the litigeous USA with these types of people. So you made a wrong purchase 10/15 years ago, why has it taken so long to realise? take responsibility for your own actions dont look for someone else to blame or jumo on the bandwagon for someone else to blame, these are just as bad as fraudulent insurance claims saying something has happended to you when it has not, very , very sad, but also very illegal, justthe banks and insurance companies too stupid to stand up for themselves against these compensation chasers!!!!!!!!!!

Lucy_Lastic

[very , very sad, but also very illegal, justthe banks and insurance companies too stupid to stand up for themselves against these compensation chasers!!!!!!!!!!]

Absolutely! I don't know what I was thinking of, putting in a claim against those poor defenceless banks and insurance companies. I'll never sleep again with the shame of it. I will make arrangements immediately to give thm more of my hard earned money, poor lambs! Oh, forgot, I already am doing.

Steve_f_4

i develop dyslexia when reading all this financial stuff! what should i do? i bought a flat (ex-council and in a real mess) for £10,000 in 1997. my mortgage 'advisor' got me a loan with friends provident. it only just went through, cos the flat was a mess and the valuer tried to back out, but i finally borowed £4750. not much, i know, but i work in the arts and am quite poor. after a few months i realised that my repayments didn't match what i thought they should be. it turned out that the company had sold me an endowment (i had no idea) as well as charging me for repayment. i know, very odd. i worked out that i had payed out more each month because of the endowment and asked fopr the difference back. i got £60. the advisor told me i shouldnt dump the endowment cos of the early charges would have meant i lost a lot. this was my first mortgage, i had no intention of staying in the flat for long and i was young-ish and single.

i was never told about the possibility of shortfall. i would never have taken an endowment. i didn't even know i had! i have tried to reason with the broker but got short shrift. i keep meaning to send in a complaint but really find it difficult to work out what to do. i know how pathetic that sounds but i suffer from depression, am on medication and just struggle with this sort of thing. why cant i just ring up friends prov and get them to sort it out? surely this is an open and shut case? any advice my lovelies?

dunstonh

why cant i just ring up friends prov and get them to sort it out?

If it was friends provident giving the advice, then your complaint is with them. If it wasn't them giving the advice, then they have no liability as they have done nothing wrong. You need to complain to the company that gave the advice.