Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • talexuser
    • By talexuser 20th Oct 19, 1:54 PM
    • 2,866Posts
    • 2,218Thanks
    talexuser
    St James's Place
    • #1
    • 20th Oct 19, 1:54 PM
    St James's Place 20th Oct 19 at 1:54 PM
    This is a story from the Borisgraph that I found hard to believe:

    A couple took out a life insurance in 1992 in their early 60s Sum assured £110k when both pass on. Over the years the sum assured has increased to £247k, ~two and a half times. The premiums have increased from £329 a year to £19,235 a year, ~58 times!

    The father has passed on, the mother is now 87 and told she can have the £247k on her death if she pays £19,235 a year for the next five years. After 5 years she can still pay £19,235 a year but the payout on death will halve to £123,500. Or she can maintain the £247K payout by premiums of £43,941 a year.

    They have now paid in a total of £144k, obviously to carry on they will get back less than they paid in! If they stop paying and cash in they will only get £49k back.

    The paper says if the mother lived to 97 they will have paid in £432k, twice the payout of the policy, while St James will have had 27 years of stockmarket compound growth with the money.

    St James could not explain the up to 24% a year compound increases in the premiums. Once the paper got involved, St James said NO more premiums would be needed to get the £247k on her death from now on, plus a £500 goodwill payment. But offered no calculations to justify their claim they will now make a loss on the policy, or any growth or fund data.

    How many years of premiums went on bonuses before anything got invested I wonder?
Page 1
    • SonOf
    • By SonOf 20th Oct 19, 2:24 PM
    • 1,780 Posts
    • 2,038 Thanks
    SonOf
    • #2
    • 20th Oct 19, 2:24 PM
    • #2
    • 20th Oct 19, 2:24 PM
    The problem is not really SJP in the case but the type of product.

    Investment backed whole of life assurance plans were commonplace upto the early to mid 90s when they became obsolete after level term assurance and decreasing term assurance plans took over dominance and whole of life plans started to offer non-investment backed guaranteed premiums (whilst going niche at the same time as most people dont have a whole of life need).

    The premiums were reviewable after a period (typically 15 years) and reviewed every 5 years thereafter. The life assurance cost was not set at the outset but at the review points. So, naturally, the premiums became more expensive as you got older. Historically, investment returns used to keep up with it and they could be used to cover the increase premiums.

    Problems started to occur with this type of plan when we moved from a high inflation boom/bust economy to a more stable low inflation economy through globalisation and the gross investment returns started to fall compared to the decades that had gone before.

    as the investment returns were lower, the only way to keep the sum assured was to increase the premiums. The alternative was to reduce the sum assured and keep the premium as it was to find a figure in between.

    There was the potential for sales rep manipulation on these plans. As the premium wasnt reviewed for the first 15 years, the rep could lower the investment element and increase the assured making them look better than any competitor product. e.g. agent 1 says you get £xxx sum assured for £y pm. agent 2 coming in after knows they need to beat that, so they divert more of the premium to the sum assured away from the investment and say they can get you£xxx+ sum assured for the same £y pm. You do see a lot of FOS upheld complaints on this type of plan for that reason.

    This couple bought theirs in 1992. So, just before it went obsolete. Had they reviewed it earlier, they may have been able to switch to a more modern version with guaranteed premiums and a guaranteed sum assured.

    A secondary thing that a lot of these types of plans had was that if you survived to a certain age, the premiums would cease but you would retain the benefits as if you were still paying them. Typically around age 85 with most providers. SJP don't appear to have had that on theirs. So, the freezing of the premiums at age 87 is something that had a whole of market provider been used, would have been done anyway.

    SJP don't appear to have found this missold but it does highlight that their versions of products were expensive and poor quality as far back as 1992 (caveat being that is was an earlier brand that morphed into SJP).
    • talexuser
    • By talexuser 20th Oct 19, 5:59 PM
    • 2,866 Posts
    • 2,218 Thanks
    talexuser
    • #3
    • 20th Oct 19, 5:59 PM
    • #3
    • 20th Oct 19, 5:59 PM
    Still, refusing to give any examples of typical investment returns or any funds used for comparisons gives the impression that "rip-off" is not enough to describe these practices.
    • Thrugelmir
    • By Thrugelmir 20th Oct 19, 6:21 PM
    • 65,469 Posts
    • 57,601 Thanks
    Thrugelmir
    • #4
    • 20th Oct 19, 6:21 PM
    • #4
    • 20th Oct 19, 6:21 PM
    The paper says if the mother lived to 97 they will have paid in £432k, twice the payout of the policy, while St James will have had 27 years of stockmarket compound growth with the money.
    Originally posted by talexuser
    Life assurance is a pooled book. Not a singular transaction. The profit from a £329 premium in year one won't have compounded to a very large sum.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • talexuser
    • By talexuser 20th Oct 19, 7:23 PM
    • 2,866 Posts
    • 2,218 Thanks
    talexuser
    • #5
    • 20th Oct 19, 7:23 PM
    • #5
    • 20th Oct 19, 7:23 PM
    It would be interesting to see how much a line from £329 in the first year to £19,325 in the last over 27 years from '92 in the all-share would have done, just for a comparison. Obvioulsy I assume they must use a proprotion of bonds for payouts but still.
    • greatkingrat
    • By greatkingrat 20th Oct 19, 11:21 PM
    • 207 Posts
    • 185 Thanks
    greatkingrat
    • #6
    • 20th Oct 19, 11:21 PM
    • #6
    • 20th Oct 19, 11:21 PM
    I wonder why they would even have wanted a life insurance policy in the first place? I can understand a policy of a few thousand to cover funerals etc, but surely the vast majority of 60 year olds don't need 100k+ of life insurance?
    • coyrls
    • By coyrls 20th Oct 19, 11:49 PM
    • 1,284 Posts
    • 1,413 Thanks
    coyrls
    • #7
    • 20th Oct 19, 11:49 PM
    • #7
    • 20th Oct 19, 11:49 PM
    I wonder why they would even have wanted a life insurance policy in the first place? I can understand a policy of a few thousand to cover funerals etc, but surely the vast majority of 60 year olds don't need 100k+ of life insurance?
    Originally posted by greatkingrat
    They don't but the sales trick is to say it's to avoid inheritance tax with a trust setup to receive the benefit.
    • bearshare
    • By bearshare 21st Oct 19, 3:39 PM
    • 74 Posts
    • 53 Thanks
    bearshare
    • #8
    • 21st Oct 19, 3:39 PM
    • #8
    • 21st Oct 19, 3:39 PM
    They don't but the sales trick is to say it's to avoid inheritance tax with a trust setup to receive the benefit.
    Originally posted by coyrls
    Ah - so a policy that starts off cheap, then has enormous contributions later on (near end of life) which then pays into the trust on death, would be just what was requiired. Doesn't really need mush investment growth then. It's real purpose is to evade inheritance tax?
    • Seabee42
    • By Seabee42 21st Oct 19, 3:41 PM
    • 431 Posts
    • 251 Thanks
    Seabee42
    • #9
    • 21st Oct 19, 3:41 PM
    • #9
    • 21st Oct 19, 3:41 PM
    Its real purpose is to provide the provider with an income.
    • coyrls
    • By coyrls 21st Oct 19, 3:52 PM
    • 1,284 Posts
    • 1,413 Thanks
    coyrls
    Its real purpose is to provide the provider with an income.
    Originally posted by Seabee42
    Exactly! The psychological hook is that the victim discounts the premiums by 40%, without questioning either the extent of their liability (if any) to inheritance tax or their ability to live on their income after paying enormous premiums later in life.

    I speak from some experience as my mother fell for this trick (without my knowledge) from St James’s Place when her estate was below the inheritance tax threshold once my father’s unused allowance was added.
    • Malthusian
    • By Malthusian 21st Oct 19, 4:04 PM
    • 6,992 Posts
    • 11,273 Thanks
    Malthusian
    Ah - so a policy that starts off cheap, then has enormous contributions later on (near end of life) which then pays into the trust on death, would be just what was requiired.
    Originally posted by bearshare
    Near end of life you might have enormous expenses due to care costs, which makes it even more likely that the policy will be cancelled and all the premiums lost.

    It's real purpose is to evade inheritance tax?
    Tax evasion is illegal.

    The purpose isn't to avoid inheritance tax. They could just give the money away that they were going to spend on premiums and that would also potentially avoid inheritance tax in exactly the same way.

    The real purpose is as per Seabee.
    • talexuser
    • By talexuser 23rd Oct 19, 8:07 PM
    • 2,866 Posts
    • 2,218 Thanks
    talexuser
    St James's is under pressure over paying for perks for employees from their huge fees and poor fund performances. Apparently it is reported they cancelled at the last minute the usual reward for hitting targets, employees were angry losing their normal week long cruise among the Greek islands, all expenses paid.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

969Posts Today

7,545Users online

Martin's Twitter