Surrender value going down? - it gets worse

Zeldazog · 16 August 2004 at 3:42AM

Can anyone advise?

I got an (25 year, with profits) endowment mortgage 11 years ago.

In Sept 02 (when I knew I would be selling), I got a surrender value of approx £4,000. I'd paid about £3,800 in premiums, and it had earned bonuses of about £3,000. I was told I couldn't freeze the policy when the house was sold, and wasn't warned that the surrender value might go down.

I sold the house last year, don't have a new mortgage, and a couple of months back looked at either surrendering or selling the policy. Paid in a further £700 or so - I got a new surrender value of £3,690. How can this go down?

I've written and asked for a breakdown of the charges, and after a couple of "sorry for the delay, we're looking into it" letters, they've written back with what seems like a load of waffle, and said that the surrender value is correct and fair (They've increased it to £3780, but I will have since paid at least 2 more premiums of £35)

To be truthful, I'm a single parent, and struggling right now financially, and could do with selling it quite soon, but does anyone think that I have even the slightest cause for complaint?

(I was also in the process of looking at the mis-selling aspect, but that's a lengthy one I guess, and I presume selling it won't help my cause there either).

I'd be grateful of anyone's opinions.

Thanks

NB - sorry, forgot to mention, when I got the first surrender value it was given over phone, and was not confirmed in writing by the rather well known company.

*see update at bottom of thread*

dunstonh · 16 August 2004 at 12:22PM

(assuming unit linked). The stockmarket has dropped back a little over the last few months. So all the units you hold have dropped in value.

This isnt a bad thing for endowments with a long time still to run. Indeed its a very good thing to happen as it means you buy more units each month. However, in the short term, it looks like you have less. There is absolutely no grounds for complaint. You should be aware that you cannot sell unit linked endowments.

(assuming with profits). The stockmarket has dropped back a little over the last few months. Some of the insurance companies, which are closed for new business, have increased their market value reduction (MVR) a little more or have wiped out a little more terminal bonus. There is absolutely no grounds for complaint.

There are three values. Current, surrender and surrender after MVR. Some companies cannot quote an MVR over the phone and it would say that in the recorded message or when the person on the phone gives info about the value.

As for complaining, if you were aware at the start that the endowment was based on investments that will fluctuate over time and may or may not hit target, then you have no grounds for complaint. If you werent, then you may do.

Zeldazog · 17 August 2004 at 3:14AM

Thanks for the reply, DD.

It was a with profits.

Whether I was mis-sold an endowment mortgage in the first place is a different issue and not want I meant to address here.

My grievance that despite me having put a further £700 in, the surrender value has gone down by around £300.

That, the company never warned me of this possibility, even though they knew I was in financial difficulty, and that was why I was selling the house and looking to reduce all other costs. I was told I could either sell or surrender, but I wasn't warned that the surrender value could go down.

At no point has MVR ever been mentioned, I never heard this term.

When I asked said company to explain how they had come by such a figure, they weren't prepared to give breakdown of the charges.

I still don't understand how, after 11 years, having paid in over £4,000 and it having earned over £3,000 in bonuses, can they justify the surrender value?

Milarky · 17 August 2004 at 12:12PM

I still don't understand how, after 11 years, having paid in over £4,000 and it having earned over £3,000 in bonuses, can they justify the surrender value?

..because the 'bonuses' are only payable at maturity (in 14 years time). This is one of the confusing (and annoying) aspects of with profits policies - they give a 'misleading' impression at every stage. In 14 years you will get an extra £3000 in bonuses plus (if you're very lucky) some future bonuses added to that. But as of today that "£3000" may be valued differently (i.e. be worth less). This also applies to the "Basic sum" - on which the bonuses would be based - because this too is only the amount payable at the end of the term of your policy once all the premiums have been received.

My situation:

With: Standard Life, 17 years (8 years to run)
Current surrender value: 40% of loan
Guaranteed value [i.e. at maturity, and after remianing premiums paid]: 59% of loan

This means that if I'm a 'good boy' and pay all my premiums the surrender value will grow at an amazing... 2 per cent. The shortfall is 41%. which may be reduced by any amount of 'termnal bonus' that may be payable in eight years.

The stated policy of this company (in common with all the others) is to 'smooth' down ''payouts'' (maturity values) by reducing the rate of terminal bonus from now until erternity. The hope of someone in my postion, therefore is that:

A) Something will have been added to the 'bonuses' between now and then - effectively ''pulling up" the guaranteed value - perhaps to 62% at current rates.

The rate of "smoothing down" will have slowed and has not yet reached zero [e.g recent 25 year policy 'payout' rates have been: 99%, then 83% now 69%- each figure six months apart. So next figures could be 57%, 47%, 39%, 33%, 29%, 27% and could stop there in 3 years time.

If A) and

came to pass, I would then get about 27% added to the 62% or so - that would be about 78% - a shortfall of 22% against the amount borrowed.

Fortunately I've no motgage anymore, so the way I can look at this is in terms of the potential return - i.e. from 40% today to about 78% in 8 years, paying about 12% more in premiums.

There may also be a small 'windfall' from the demutualisation of this company - due from 2006: Say '10 percent' added to guaranteed value but not qualifying for any terminal bonus. That would add about 7% more to the total

[but this assumes that there are no more skeletons in the cupboard, really. The 'safest' thing would be to assume that no one, in a few years time, will ever receive any more than their ''guaranteed'' values - So in your case the £3000 plus the sum assured should be safe, but not a lot else]

My thoughts:
You've got to find out more about your policy (and get a bit of advice) but with 6 years more than mine till it matures, you are exposed to a longer period of declining "payouts" [as described above] which reduces the potential return to your policy compared to mine. and might make for a different conclusion in your circumstances [i.e. that you would surrender where I might hold on]. Remember too, that there is a limited market in 'second hand' endowments [known as 'Traded Emdowments'] which DD alluded to in his reply. You should be able to get a better value disposing of your policy in this way than simply ''selling it'' back to the insurance company.

In general it seems to me that these companies want people to 'hang in there' without having the decency to explain exactly what they have in mind for them. This is fakery and dishonesty - and leads to individuals not doing what is best for them (but may be: 'best for the rest', of course) out of a misplaced desire to 'trust' these people after having been disappointed. My best bit of advice therefore is to ''trust no one" >:( !!

[Good Luck]

dunstonh · 17 August 2004 at 1:33PM

It may not be an MVR that caused the reduction. Its just a possibility. The provider may have reduced more of the final bonus.

Remember the person on the phone is probably some poor sod on a three month rolling contract with poor pay and no company benefits. There is no incentive or reason for them to learn about the products. Plus there is a fine line between giving factual responses and providing advice or giving opinion. They are not allowed to provide advice or give opinion.

That may seem unhelpful from the company but they have to act within the guidelines regarding advice.

Zeldazog · 18 August 2004 at 1:00AM

Thanks for all your replies.

I think you've helped me make my mind up. I will probably sell the endowment on - I did have a few quotes a couple of months back, but as they all wanted the surrender value, and I thought it was too low, I asked them to hold off, whilst I pursued it.

To be honest, whether there is a possibility of the investment turning around and making good in the end is totally irelevant to my situation. I got no mortgage to worry about, I have other life cover, and I owe money to other people. I am a single parent, I havne't took my son on holiday for 3 years, the car is due for tax, mot and servicing, and christmas is only four months away!!

But from what you both say, I probably haven't got a great cause for complaint (other than there unwillingness to provide a breakdown how they came by the surrender value - not company procedure apparently - when I rang the FSA, they told me that every company should have guidelines to follow, so I don't know why it should be shrouded in secrecy - what are they hiding, I still have to wonder?)

I am just very pee*d off that after having £4,700 of my money sitting in their coffers and not mine, that they want to keep a £1,000 for their "costs". Sod the bonuses, my money back would have been nice.

I think it irks me even more so, because when I found the original paperwork (from General Accident), after five years, the surrender value was a guaranteed sum, which was about 95% of my investment so far. So(Norwich Union) wanting to penalise me to the effect of about 20% is very very irritating. (Maybe this should be on the rant board??)

Fair comment DD about the poor sod on the end of the like, although from what I remember when a friend went to work for them a few years back, Norwich Union were good payers and had excellent benefits.

Whenever talking to anybody about financial products they always say the cannot give advice, but telling me that a surrender value could go down as well as up would only have been giving me information for me to make my own decision.

Anyway, guys, thanks. I'll probably sell, and I'll speak to the company looking into the issue of misselling - I don't see how I could claim much compensation as, if I have no mortgage, and the policy is sold on or surrendered, there will be no shortfall to claim.

(NB to DD - I did read another thread with your comments about people jumping on the miselling bandwagon to claim compensation - I think this happens all too often these days across a range of issues - but I'd be the first to admit that I am unsavvy when it comes to financial products (endowments, investments, pensions, don't understand 'em), and as I took the mortgage out only a couple of years after the last endowment uproar (late 80's was it?) I queried the risks - had I been advised that there was any risk of a shortfall, I would never have done it - unsavvy I might be - stupid, I am not (I've never had enough money to take risks, I would rather it be somewhere with a low return but safe). But as I said before, there's probably not a lot of help I can get there if I sell anyway.

I've just never been lucky with money! Lets hope MSE can save me.... :-/

Zeldazog · 27 August 2004 at 4:18PM

Back in June when I got the surrender value, I also got quotes for selling - bids were around £4,300 with the best offer being about £4,800.

So, I've just paid another 3 premiums in - £106. Asked the company who made the best bid to give me a new quote.

The offer they made? Just over £4,000.

I said I was unlucky. I really don't know what I can do, but it seems the more I pay in, the less it is worth.

Surrender value going down? - it gets worse

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