Unity Mutual LISA

TheTrotsky

masonic said:

TheTrotsky said:

My point about the FCA was simply that I'd checked to confirm that Unity Mutual was on the register. As regards the product, Unity Mutual clearly states in its Key Information Document that the product is covered by the FSCS. I've done as much as I can to confirm that the product is covered. At the end of the day its caveat emptor, as always, because the FCA is not, in my opinion, fit for purpose. For example, apparently some of these mini-bond promoters have been promoting themselves online and in promotional material as being regulated by the FCA and covered by the FSCS (for years in some instances) without any sanction by the FCA and don't get me going on the FCA's oversight of peer-to-peer investors (the FCA have allowed some of them to carry on trading when they knew they weren't even ring-fencing client monies). In my opiion, Andrew Bailey should have been sacked but instead he was made Governor of the BofE! So I'd be very concerned.

Yes, it is good that you confirmed they are on the FCA register, many do not, and I share your misgivings about the FCA and its register, and also about Andrew Bailey failing upwards.

TheTrotsky said:

I take your point about the accrued interest. Obviously once interest is paid it becomes part of your capital and the interest for 2019-20 has now been paid (just not advised on the latest paper statemnt). So, in principle, only the accrued interest for the current tax year should be "at risk". Looking at the terms and conditions it does talk about interest being "earned" on a daily basis (Clause 9) which led me to believe that interest would be credited daily, not accrued. This misunderstaning only became apparent when the paper statements arrived.

I think there is still a lack of clarity here. This is the performance scenarios table:

The 0% return over 1 year could be explained by UM becoming insolvent within the first year (although I'd call that more than 'Unfavourable' or even 'Stress').

However, reflecting on this further, the 0% return over 3 and 5 years cannot be explained assuming a 1.50% pa return in the first year. This must be paid for the policy to exist in year 2. UM could declare 0% interest for future years and still remain within its obligations, but I'd assume the first years interest, when paid, cannot be taken away again.

So either the table is wrong, or there are mechanisms by which this interest can either not be paid, or be clawed back. One explanation is FSCS compensation that only covers premiums paid for the insurance product and not any interest (either paid or accrued). I'm no expert on the FSCS compensation for insurance products, it will differ from the FSCS compensation for bank savings, so perhaps this is possible. I would suggest it is necessary to have a very good understanding of what happens in practice in the 'Unfavourable' and 'Stress' scenarios above (and how they could arise) before considering an investment in this product.

TheTrotsky said:

I would however point out that the same interest risk applies to any FSCS protected bank account where interest isn't being credited to your account on a daily basis; so in, in principle, the same interest risk applies to the interest paid by, for example, Nottingham BS which pays interest annually (it may well just be the case that Nottigham BS doesnt't choose to highlight this risk in its documents).

Obviously, you may consider Nottingham BS a better credit risk than Unity Mutual/Oddfellowes but that's a different discussion.

Accrued interest on deposit accounts is covered by the FSCS protection for savings up to the date the firm fails (or shortly thereafter), or for fixed term accounts until the end of the fixed term. I was lucky enough to experience a FSCS payout after holding an Icesave account, so know this only too well - some opted to hold their 1 and 2 year fixed term accounts to term and receive full interest, I wasn't so brave and took my capital + interest up to the claim date and ran. Different types of FSCS claim have different rules, hence it's important to understand the difference between savings claims, investment claims and insurance claims if taking out products that fall into those categories. As I mentioned above, I'm not an expert on FSCS claims for insurance products, so I can't explain why it is possible to have a 0% return from this type of investment as set out in the Performance Scenarios table, when there is a supposedly guaranteed interest rate set each year. For an equivalent cash LISA this would not be possible.

I also raised a pertinent point in the discussion thread from 2018 (posted by grumiofoundation above) that the timescales on FSCS claims can differ significantly depending on the type of claim. For savings, the aim is within 2 weeks, whereas for the failed credit union I mentioned in that thread the money was frozen for a couple of months, and for claims involving investments, it can take as long as a year for the FSCS to start accepting claims. I don't know where insurance claims sit on that scale, but a complex product like this might take considerably longer than 2 weeks, which could be a big problem for someone needing the money for a house deposit at that time.

Hi Masonic,

Your experience with IceSave was clearly different to mine. My recollection was that I wasn't paid the interest accruing on my fixed term deposit (I was just very glad to just get my capital back!) and thus my comment on accrued interest.

Trotsky

masonic

TheTrotsky said:

Hi Masonic,

Your experience with IceSave was clearly different to mine. My recollection was that I wasn't paid the interest accruing on my fixed term deposit (I was just very glad to just get my capital back!) and thus my comment on accrued interest.

Trotsky

That's very strange. Here are a couple of excerpts from an email sent by the FSCS to all IceSave savers on 21st November 2008:
5. If you hold an Icesave fixed rate savings account, you will be offered the option of payment of your deposit through the electronic payment process. Alternatively, you will be able to opt to receive the principal amount of your deposit, together with accrued interest up to the maturity date, at the end of the fixed term. If you choose this latter option, then the electronic process option is not available to you...
6. Irrespective of what type of Icesave account you hold, if you choose to participate in the electronic payment process for that account, then the payment amount you receive will be the principal sum deposited plus interest up to and including 7 October 2008.

2unlimited91

masonic said:

The 0% return over 1 year could be explained by UM becoming insolvent within the first year (although I'd call that more than 'Unfavourable' or even 'Stress').

However, reflecting on this further, the 0% return over 3 and 5 years cannot be explained assuming a 1.50% pa return in the first year. This must be paid for the policy to exist in year 2. UM could declare 0% interest for future years and still remain within its obligations, but I'd assume the first years interest, when paid, cannot be taken away again.

So either the table is wrong, or there are mechanisms by which this interest can either not be paid, or be clawed back. One explanation is FSCS compensation that only covers premiums paid for the insurance product and not any interest (either paid or accrued). I'm no expert on the FSCS compensation for insurance products, it will differ from the FSCS compensation for bank savings, so perhaps this is possible. I would suggest it is necessary to have a very good understanding of what happens in practice in the 'Unfavourable' and 'Stress' scenarios above (and how they could arise) before considering an investment in this product.

I don't know, but perhaps the issue is with how the table should be interpreted. I should think it was designed for volatile investments, such as equities, where one might lose money if one sold out after 1 year (e.g. after a crash), but have a fair chance of seeing from a recovery if one held on for 3 or 5 years. If UM "crashed" (i.e. became insolvent) during the first year, then one would apparently only get back what one put in, with no interest; and this would not improve by holding on with UM for 3 or 5 years; though of course, one could put one's money into another LISA for the remaining 4-and-a-bit years, where it might grow — but that growth is outside the scope of UM's table. Perhaps that is all it means.