Endowments - how do we know if it is on target or not?

Mslouise

I'm not sure we were missold our endowments (and that wasn't the point of the post) - I was under the impression that you couldn't complain while getting green letters so the thought hadn't entered my head. We were told that the rates they were using at that stage ('99) were much more realistic than in the 80s.

I really just wanted to check if we could take comfort by the fact that our letters are still green.

opinions4u

Mslouise wrote: »

I really just wanted to check if we could take comfort by the fact that our letters are still green.

Yes, you can.

It's good news. But it's not a cast iron guarantee.

Mslouise

Your endowment is green even on todays lower growth rates. Disclosure requirements in 99 were far higher than earlier years. So, why do you think you were taken in?


I guess that was the wrong way to put it - we were warned that there were risks. However the impact of not reducing the mortgage debt to improve ltv (and securing better interest rates) was never mentioned to us and we would be in a much better financial situation now had we taken out a repayment mortgage. I guess we weren't taken in - just made a costly bad decision!

marmitepotato

I made a claim two years ago when we were getting green letters. We got 4k compensation. We are still getting green letters......

eskbanker

dunstonh wrote: »

A green one cannot be timebarred using the usual method. An endowment projection for mid rate has to drop into shortfall and a "high risk of a shortfall" warning given out (Also known as red warning). A complaint about an endowment in "green" would be largely pointless as even if your complaint succeeded, the fact it is on or above target would result in no money.

Isn't time-barring based on three years since being made aware of potential mis-selling (assuming more than six years since purchase)? My understanding is that the basis of a claim for mis-selling has to be that risks weren't explained, etc, rather than poor performance per se, i.e. even a series of green letters illustrating favourable growth projections could still be construed as making the policyholder aware of the risk of shortfall.. Has this line of argument been used by endowment providers or have I just got the wrong end of the stick?

TrickyDicky101

Mslouise wrote: »

We have £70,000 of our mortgage on interest only and pay 2x£85 per month with 10 years, 11 months to run. I was quoted £15,000 for each endowment a few weeks ago ie £30,000 in total).

We currently also owe £84,000 in repayment with 16 years 10 months still to run and are paying 4.79% (we are stuck on SVR as the endowments mean we have a low loan to value rate).

Does that mean that total payments in respect of your interest-only endowment supported mortgage are £449 made up of:

Endowment premium £170
Interest on mortgage £279

Because if that is the case, if you fully converted this interest only mortgage to repayment basis (and at the same time surrendered your endowment and put the £30k proceeds to paying down the balance to £40k), then @ 4.79% your monthly repayments would be only £392.

Thus, you would give up whatever life cover you get with the endowment but in return would guarantee the mortgage would be paid off at the end of the term and in the process save £47 per month.

holly_hobby

Mslouise wrote: »

We have 11 years left to run on our endowments (yes, we were taken in by financial advisers in 1999 and secured our first mortgage with endowment policies).

To date all the letters have been green but how much faith should I have in these letters and is there any alternative way of calculating if our policies are currently on track to pay out what we need them to?

We are trying to decide whether it is better to sell them and use them to pay off the capital on our house (currently our mortgage is part interest only/part repayment) or keep going with them.

Many thanks

The estimated maturity letters ( shorthanded as EMVs) you receive are on prescirbed industry rates, so don't always accurately reflect the actual performance of the policy.

To keep a better handle on how you're actually doing, always review your annual bonus statements and consider what the performance over term HAS been and developing average is (ie what annual % bonus, if any, is being awarded, has it increased over the yrs, remained static or decreased over the yrs, etc), and the ongoing (hopefully increasing) actual policy and surrender value - and whilst future bonus addition or their levels, can not be gted, it will give you a much more realistic idea and guesstimate of where you may be at maturity (plus for a with profit low cost endowment, there may be the addition of a terminal bonus, which is not gted or mandatory, so can never be relied upon.

With regards to the discussion re complaining and compensation.

There appears to be confusion, complaints in respect of regulated mis-selling are always based on suitability never performance, and any proven knowledge and acceptance of risk at point of sale (or if later when that occured). And are really nothing to do with whether your policy is actually on track, or whether you have recd a tonne of green emv letters or not, as if you were NOT advised of, aware of, or prepared to accept the associated performance risk factor and none gted nature of the policy (re target sum) had you known about, the fact its currently projected to meet target or not is completely irrelevant, as if you were not aware of or prepared to accept any or such risks to repaying your mortgage (as a result of lower actual returns), then a low cost endowment is not a suitable repayment vehicle full stop. And thats regardless of a barrel load of projections/green emv's, of it estimated to be on target or even at the lowest growth rate to have a surplus at maturity, the bottom line is the policy provides no performance gtes, and thats the entire issue in any suitability investigation and assessment.

Also compensation is not based on the projtected figs in any EMV letter - so the suggestion that green emvs would mean no or little compensation due isn't accurate. Any compensation calculation (under a mortgage endowment complain) is actually based on the monetary difference (loss) over the calculation period, between an interst only mortgage (inc premiums paid and actual surrender value of the low cost endowment at the point of calculation), compared to where you would have been (mortgage wise), if you had instead elected to effect a capital and interest mortgage (including the cost of any reqd life cover), and is only calculated over a period that the low cost endowment has acted as a mortgage repayment vehicle (ie its running along side an interest only mortgage).

So, even with green emv's (or the policy estimated to be on track using current specimen growth rates), you may still have suffered financially over the term as a result of effecting the endowment mortgage - IF as I say its established that you did not know at point of sale, and were not prepared to accept any performance risks associated with the investment vehicle recommended and purchased.

As it is, it appears from what I have read

Mslouise wrote: »

we were warned that there were risks.

, it appears you knew and accepted at point of sale that the low cost endowment had performance risks and was not gted to meet its target sum, which means that any complaint on suitability you may consider (although I know you say you don't think you were mis-sold in any event), would be defended. Time barring under endowment complaints is 3 yrs from demonstrated point of knowldge of unsuitability/risk (ie receipt of 1st red letter where risk knowledge prior to this juncture can't be established/proven by the investigator) to raise with the firm any issues of unsuitability.

So back to the plot, as I say a more realstic evaluation of performance (rather than the prescribe EMVs discussed) is actually your annual bonus statements (where once declared and added the reversionary bonus can not be removed or reduced), and the resulting running balance of your policy over the yrs - and where that currently is to where you need to be in 11 yrs.

If you want to create a safety net, you may want to consider either some or all of .....

1. making penalty free lump sum reductions to your IO mortgage balance to create less dependance on policy performance
and/or
2. save into a tax efficient vehciles/tax planning to build up an emergency fund to cover any policy target shortfall.
and/or
3. switch some of your IO mortgage to a repayment basis, again to take the pressure off the policy
and/or
4. switch your entire IO mge to repayment, using the surrender value of the plan (consider loss of benefits and cost of replacement life cover reqd, and forfeit of any possible/non gted terminal bonus at maturity), to reduce the balance with the residual switched to a full repayment basis (subject to lender affordability assessment).

Long post (apologies !), but hope it address your query and concerns ...

Anything you want to expand on, just shout ...

Hope this helps

Holly xx

Dick_here

Mslouise wrote: »

However the impact of not reducing the mortgage debt to improve ltv was never mentioned to us

This is where I completely agree. Speaking as someone who was both a seller and a purchaser of endowments in the late '80s, it just did not occur that house prices would not continually rise and that if they didn't then you could have a property worth less (or no more) than you had paid for it, at least with a repayment you'd have been nibbling away at the capital in the meantime.

End result - you're stuck in an unsuitable property which you can't possibly sell; still in nearly 25 years time you'd be a millionaire as recompense when the endowment pays out. Doh !

dunstonh

eskbanker wrote: »

Isn't time-barring based on three years since being made aware of potential mis-selling (assuming more than six years since purchase)? My understanding is that the basis of a claim for mis-selling has to be that risks weren't explained, etc, rather than poor performance per se, i.e. even a series of green letters illustrating favourable growth projections could still be construed as making the policyholder aware of the risk of shortfall.. Has this line of argument been used by endowment providers or have I just got the wrong end of the stick?

It is three years from being reasonably aware of an issue. However, for the seller, it is hard to show that the person was aware. Hence why the red/high risk of shortfall dates are key as they are accepted as starting the clock ticking.

Performance is not grounds for complaint. However, someone is more likely to complain if it is falling short. Hence the link between shortfall and complaint.

Verbal allegations are woefully hard to prove. Most endowment payouts were due to lack of decent recording keeping/documentation rather than actually being shown to be mis-sales. Unlike PPI, most endowment complaints resulted in rejection.

Imma_Number

Lack of transparency is my biggest bugbear with my endowment. I took it out in 1993 and so I've had the joy of seeing the bonuses applied drop from 3-4% of Sum Assured & 4.5-6% existing bonus to 0% for SA and 0.5-1.0% of existing bonus.

That the final value in 2018 will depend so much on the utterly opaque final bonus is frustrating.

I've been keeping track of the BSA+bonuses vs Surrender Value for the last few years and last years SV was only about £300 short of the BSA+bonuses compared to >£2000 short from the previous year. So I'm hoping that means things are looking up.

The letters are disheartening when the bonus added for the year only amounts to less than 1/10th what was paid in.

(I've no idea how much of my premium is the life cover)