Endowment Missold & Tax Question Please

elvina

Hi

I hope that someone can give me some advice please.

I took out an endowment to cover the purchase of my first home in June 1988. At the time it was in my name only & I added my husband to the policy when we got married in 2000.

In 1997 I contacted the agent who sold me the policy, he worked for Sun Life who the policy is with, because I was concerned about the policy paying out the full amount that I needed at the end of the term. He sent me a letter saying that "I can assure you that when the policy matures the proceeds will be more than enough to cover the £20,650 loan it is covering"

I recently filed a misselling claim with Sun Life, the policy has 5 years to run and they have agreed that the policy was mis sold, they have also accepted that the agent should not have sent me the letter that he did and have said that he was "wrong" to do this.

They have offered me a little under £13,000. This now leaves me with with following questions.

Should I accept this offer and pay off as much of my mortgage as I can and hope that the savings on the interest and endowment payment make up the shortfall?

Should I go to the Ombudsman and try to get more from Sun Life?

Or should I leave the policy as is and if it is short at the end of it then take Sun Life to court as they made a promise in writing.

I am leaning towards one of the first 2 options but am not sure if the Ombudsman has the power to over ride the offer given by Sun Life, if they can reduce it or if I will loose the Sun Life offer if I go to the Ombudsman.

My next concern is if I do take the cash do I then have to pay tax on it? I am a non tax payer as I am a stay at home mum but my husband is a higher rate tax payer?

We have no way of making up a shortfall in the policy and I am now getting really quite worried about it so would really like to get it sorted and know where we stand.

Many thanks in advance for any advice anyone can give.

Thanks

Elvina

dunstonh

Should I go to the Ombudsman and try to get more from Sun Life?

It doenst work that way. it isnt a game of poker. Unless you have any reason to doubt the figures used in the calculation or the wrong calculation has been used then you will not get any more money by going to the FOS. Indeed, you could get back less if you insist on a recalculation as the investment value may have increased in the interim or the surrender penalty may have dropped.

Or should I leave the policy as is and if it is short at the end of it then take Sun Life to court as they made a promise in writing.

Your case would be thrown out of court because you turned down an acceptable and fair redress payment that put you in the position you complained you should have been in. Plus, it would indicate that you were happy to take the investment risk. Something you have said you were not happy to accept suggesting that your original claim was a lie.

My next concern is if I do take the cash do I then have to pay tax on it?

The redress payment, if it includes an interest element, is taxable and paid net of tax normally. Higher rate taxpayers have to declare it on their tax return. So, in your case, half can be classed tax free, half requires higher rate tax to be taken.... assuming interest is part of the payment.

We have no way of making up a shortfall in the policy and I am now getting really quite worried about it so would really like to get it sorted and know where we stand.

If you pay the redress and surrender payment off the mortgage then you have no shortfall to worry about. You get the mortgage switched to repayment basis and your mortgage will end up at zero at the end. You need to be prepared to pay higher monthly payments on the mortgage potentially as endomwent mortgages were typically cheaper than repayment mortgages (most common reason for people doing an endowment mortgage was the cost).

You have won your case, you are getting paid the money to put you in the position you would have been in had you been on repayment from the start so as long as you do that then you will be fine.

turbobob

I also don't think the "written guarantee" complaint would stand up. The rep should not have written it but it didn't affect your decision to take out the product as it was written some years after it started. The re-projection letters would have shown the reps statement was untrue.

Is the £13k truly the compensation figure, or is it the amount including the surrender value. £13k "compensation" on a £20k policy is an awful lot.

EdInvestor

elvina wrote: »

Should I accept this offer and pay off as much of my mortgage as I can and hope that the savings on the interest and endowment payment make up the shortfall?

Yes. Increase the mortgage payment by the amount of the endowment premium so as to over pay it.You may have to pay a bit more - or extend the mortgage term a bit to cover the shortfall, but this should be a cheaper route than switching to repayment.

I am leaning towards one of the first 2 options but am not sure if the Ombudsman has the power to over ride the offer given by Sun Life

As mentioned, the offer is based on a set formula, so cannot be improved, by the FOS or the courts.

My next concern is if I do take the cash do I then have to pay tax on it? I am a non tax payer as I am a stay at home mum but my husband is a higher rate tax payer?

As you have held the policy for ten years there should be no tax payable (assuming the payment includes the surrender value). Can't see why there would be any interest involved as this is not not a savings endowment (where the missold policy is voided and the capiutal returned plus interest).

turbobob

Ed, interest can be part of the calculation in cases where:

- The sum assured is significantly over the mortgage amount
- The policy was sold in advance of a mortgage
- The calculation has been capped (for example if the complainant has converted to a repayment mortgage)
- "Churn" calcs
- Surrendered/matured endowments

In endowment complaint cases, if there is any tax liability as a result of surrendering the policy, then the firm offering the redress has to cover that. But interest is paid net of basic rate tax that can be reclaimed by non taxpayers.