Pru Compensation

Legacy_user

Having read many of the posts here about the misselling of endowments my hubby and I decided to complain to the Pru about 2 we took out in 1991 and 1992. We used the WHICH template to formulate our complaint.

We have now received our first offer of £1124.90 for 1 of the policies which they say is the difference between us having an endowment mortgage and the alternative repayment morgage. The projected shortfall at 4% is approx £3000. They have based the calculation on the Halifax base rate. We had our mortgage with the Halifax at that time but have since moved the mortgage twice to discounted rates with the Abbey and Woolwich

My question is this what should we do now? Our mortgage is supposed to be paid off in 2008 and according to the Prudentials own literature any endowments maturing this year (2005) will reach the sum assured target. Should we accept this as a fair offer and and should we keep the policy or sell it and convert to wholly repayment. My worry about this last option is the short amount of time left to 2008.

EdInvestor

Hi Pam

Pam17 wrote:

We have now received our first offer of £1124.90 for 1 of the policies which they say is the difference between us having an endowment mortgage and the alternative repayment morgage. The projected shortfall at 4% is approx £3000.

#First, the compensation is not meant to pay off the shortfall.It is only meant, as they say, to put you in the position you would now be in if you had had a repayment mortgage.

This is based on you surrendering the endowment now, and using the surrender value and the compensation payment to reduce the capital owed on the mortgage, while also devoting the former endowment premiums to increasing the monthly mortgage payment for the duration until it is due to be paid off.

If you do this, you should have no further problems.

beefster

Advice I was given, which was also backed up by people on hear 3 years ago was.....

Keep the endowments running to the end.
Swap the mortgage over to a repayment immediatly. Set the new mortgage up so that the payments you make will reduce your outstanding debt to approximatly (or even better less than) the projected Endowment pay out at 4%. I believe that 4% is on the low side as current performances (I hope) are deemed to be above this. It is Crucial that you ensure you have no early redemption penalties in place at the time the endowments pay out.

When the endowments pay out you will hopefully have a lump sum equivalent to, or above your outstanding mortgage total and with no penalties you simply pay it all off.

Example
£60000 mortgage

Your Endowment projection is at worst £57000. Add your Comp pay out at £1100 (which you stick in a savings account) means you only need to reduce your outsatnding balance by £1900. Any mortgage advisor will set this up for you in their stride.

Its working for me.

EdInvestor

...the Prudentials' own literature any endowments maturing this year (2005) will reach the sum assured target...

Is the sum assured the same as the mortgage target on your policy?

Post the following figures for some more info about the likely performance of the endowment:

1.Guaranteed sum assured
2.Declared bonuses so far
3.Surrender value
4.Amount of terminal bonus in surrender value
5.Monthly premium
6.Maturity date

System

beefster
if I convert wholly to repayment what period do I take this new mortgage over if I want to use the endowments to pay most of it off. Do I just ask the financial advisor to arrange a repayment mortgage for me costing something similar per month to our present payment and then use the endowments to reduce the capital owed as and when they mature?

If I did this, given that my endowments mature in 2008/2009, would I have actually paid any capital off the mortgage or would it mostly be interest?

Also is it better to invest the compensation in a savings account rather than use it to reduce the capital owed?

Editor sorry missread the literature it actually said the target amount rather than sum assured.

The details of my policy are:

guaranteed sum assured £11395
minimum death benefit- target amount £22125
Monthly premium £65.72
Maturity date 01-09-2008
Declared bonuses so far £4722.85
Surrender Value £14401.80
Amount of terminal bonus in surrender value - the girl in India couldn't give me that information.

System

Just bumping it up to see if anyone can answer my other queries.

Thanks

EdInvestor

Hi Pam

You're guaranteed to get 16,117 on maturity if you keep paying the premiums, but we can't say much more without info on the TB, as this is the Pru, where TBs still mean something. So a 3k shortfall sounds reasonable.

If you surrender the policy and put the S/V plus the compo payment in the bank at 5% for three years and pay in the endowment premiums as well you will end up with 20,536. So you would need to increase your monthly payment a bit to cover the shortfall.

Have a look at a mortgage calculater to see how you would be fixed if instead you devoted all this money to paying down your existing mortgage - that may be less hassle and just as effective as remortgaging.You "save" more by paying back at your mortgage interest rate which may be higher than 5% and of course you pay no tax.
Overpaying a large dollop with the S/V might save you quite a lot of interest.

System

Editor thanks for that. Do you think I would get more if I sold the policy rather than surrendered it? What gets me is the way the surrender value is less than the sum assured + bonuses so far.

dunstonh

What gets me is the way the surrender value is less than the sum assured + bonuses so far.

It would be. The sum assured was given to you from day 1 and you are only entitled to it if you stick to maturity.

Its a common error people make when they look at their contributions and see the amount of annual bonuses is lower than the premium they paid in. They forget the guaranteed sum assured and terminal bonuses (where applicable).

EdInvestor

Pam17 wrote:

Editor thanks for that. Do you think I would get more if I sold the policy rather than surrendered it?

You might do. It's worth a check because Pru policies still have reasonable TBs. Remember of course that if they do want to buy it, that means they think they will be able to make a profit, so you could do the same by holding on to it .

Trying to sell is quite a good way to get a free professional opinion on how your policy might perform.Sadly these days many endowments are of no interest to the TEPs buyers at all, so that in itself will give you an idea of what to expect.

beefster

Pam17 wrote:

beefster
if I convert wholly to repayment what period do I take this new mortgage over if I want to use the endowments to pay most of it off. Do I just ask the financial advisor to arrange a repayment mortgage for me costing something similar per month to our present payment and then use the endowments to reduce the capital owed as and when they mature?

This may not work over such a short period but the advisor will let you know. The term of the mortgage is reliant on the figures. If its redemption penalty free it will not cost anything when you pay it off. IE if you owe £60000 and you are going to be about £5000 short with the endowment, set a mortgage up that pays £5000 off the debt at about sept 2008. Fees for mirtgages are rising so dint forget to tale that into account too.

If I did this, given that my endowments mature in 2008/2009, would I have actually paid any capital off the mortgage or would it mostly be interest?
Depends what you set up and how mush you ncan pay per month.

Also is it better to invest the compensation in a savings account rather than use it to reduce the capital owed? By all means pay a bit of mortgage off if you dont need access to the money and the mortgage co. allows this.

The details of my policy are:

I am no financial advisor but over a mucj longer term this is working for me and it looks like my endowment performance will be better than my worse case scenaro so a cash lump sum at the end too.