Prudential Endowment

Legacy_user

I recently wrote to the Pru about 2 endowments we were mis-sold. I have already received a reply about 1 of them offering us compensation to bring us to the position we would have been in had we been repayment rather than endowment. They did offer us the chance to have it recalculated if we disagreed but said this first offer would then be withdrawn whether we liked the second calculation or not (it was worded more diplomatically than that).

So far we haven't done anything as we have been waiting for a response re the second endowment and today I got a letter apologising for the delay and advising us that since it had not been dealt with within 8 weeks we now had the right to go to the Financial Ombudsman service and complain.

My questions are these.

1. Not understanding how they calculate their compensation offer should I query the first offer and risk being offered less and if I do query it on what grounds would I do this?

2. Since it has taken us ages to get our heads out of the sand and actually do something about these policies ( prompted by this site) do you think we should give the Pru more time or go straight to the FOS?

3. This is just general curiosity and me being totally ignorant of the workings of mortgages but why do others appeal to bodies like FOS if they have been offered compensation which would bring them into the position they would have been in had they had a repayment mortgage?

dunstonh

1 - Its a depends issue. Both options will result in similar amounts. However, it depends on whether your rate on your mortgage has been standard variable all the time or you have been keeping it on lower cost deails.

2 - Pru are generally not that bad at dealing with complaints. If its an old Scot Amicable policy, chances are they are having difficulty laying their hands on the paperwork within the agreed timescale. You could give them more time and then if no improvement, go to the FOS.

3 - Because they think they will get more. Many seem to think that they will get more than they do. They fail to realise that the requirement is to put them in the position they were if they had a repayment mortgage. Sometimes this results in no payout or small payouts of a few hundreds. That often depends on the performance of the endowment and not all endowments are bad. Remember an endowment that is performing above track can still have a red shortfall projection issued because of the flaws in the projection method. So, surrender a policy like that and chances are the surrender value more than covers the difference of the repayment mortgage and therefore no compensation. One (incorrectly) angry person who then decides to go to the FOS. However, sometimes the insurance company will pay a nominal increase as they have to pay for every case that goes to the ombudsman whether the complaint is upheld or not. A payout cheaper than the ombudsman fee on cases sometimes happens. That would depend on how water tight they feel their response is.

EdInvestor

Q.Why do they go to the Ombo?

A. Because they think they will get more. Many seem to think that they will get more than they do. They fail to realise that the requirement is to put them in the position they were if they had a repayment mortgage.

There seems to be a pretty widespread misunderstanding that compensation is supposed to make up the shortfall - not put people into the same postition they would have been in etc etc etc.

In addition people don't seem to know that the compo is based on them "unbundling the product" - ie, surrendering the endowment and using that money,plus the compo money to reduce the size of the mortgage and replace the life assurance.

So they make the claim, get the compo money and then do nothing.

So the shortfall doesn't go away,indeed it gets bigger....:eek:

System

Editor can I ask why it gets bigger?
I was thinking of accepting the compo and putting it towards the mortgage but letting the endowment run to 2008 when it is due to mature as the Pru is supposed to be one of the better companies. When we originally received the offer several weeks ago I rang up to enquire about the surrender value and it was less than the value on my last annual statement. As I said before I do not understand how these policies work and where they get their figures from and would appreciate all the help I can get in making a decision on what to do next.

Many thanks

dunstonh

It doesn't necessarily get bigger. It could get bigger, it could get smaller. Its the unknown and editor is assuming the worst.

Pru's bonus rates generally stayed the same with a few rising this year and a few dropping across the range. The feeling with them is that they have bottomed out and you will see an increase in the terminal bonuses in the coming years. It is expected that annual bonus rates will remain low as they impact on the financial strength of the insurer in a negative way as they are guaranteed. Terminal bonuses are not guaranteed and give the insurer more protection if things were to wrong.

One thing to be careful of Pru is that their terminal bonuses and MVR calculations sometimes (quite often actually) get missed off on valuations. This includes online and telephone. With the online version you get a statement printed on it telling you that they couldnt give it to you. I'm guessing that the online version reflects what the Pru teleperson sees on their screen and its possible that they do not mention when one or both of these is not taken into account.

EdInvestor

Hi Pam

Pam17 wrote:

Editor can I ask why it gets bigger?
When we originally received the offer several weeks ago I rang up to enquire about the surrender value and it was less than the value on my last annual statement.

Your endowment hasn't got long to go.Can you find out what percentage of your policy is in terminal bonus? You report that it is going down still: you may feel that taking the money in advance of maturity is a good idea in case it all disappears. A bird in the hand.....?

Why does the value of the endowment keep going down?In fact your terminal bonus element is being reduced. Why is this happening? Three reasons: one is that the serious falls in the stockmarket in 2001-2 are still filtering through to policy values - there is a delay because of "smoothing".Your policy value was down because another "good year" dropped out of your policy, to be replaced with a "bad year" and thus your terminal bonus will have fallen.

Another is that there have been regulatory changes in recent years forcing insurers to reserve money in bonds to cover guarantees: thus many With profits funds are now invested mainly in bonds,not in equities as they used to be. Thus returns will be lower. You also now have to pay a charge for any guarantees.

The third reason is the low inflation and low interest rate environment : this switch from the old high inflation days is also lowering returns.

So you can't expect the endowment's performance to go back to what it was before, though it may stabilise: the Pru's WP fund is about 50% in equities IIRC, which is better than most, compared with the 75% level it used to be.

Because these policies were set up in the days when double digit returns (at least) were expected, charges tend to be high - a 2 or 3 percentage point charge isn't noticeable if the policy's earning 15%, but, hey, if it's earning 7% that's nearly half your money. Most people can get better returns by using the money to reduce their mortgage.